Investment Highlights

• We maintain our HOLD recommendation on Malaysian Pacific Industries (MPI), with a higher fair value of RM49.54/share (previously RM36.05/share), pegged to FY22F PE of 32x (previously 21x PE on CY22F). We make no ESG adjustment to reflect our 3-star rating (Exhibit 4)

• MPI’s 1QFY22 results exceeded expectations, recording a core profit of RM86.9mil. The results accounted for 28% of both our and consensus’ full-year estimates. This is after excluding a RM2.1mil forex gain and RM2.7mil gross dividend income from short-term investments, partially offset by RM9.0mil of shared-based payment.

• YoY: MPI core profit soared 45.9% on 32.7% higher revenue as sales rose across all its geographical segments, with Europe leading the growth at 43.1%. Sales from Asia and the USA increased 30.2% and 30.6% respectively. In addition, EBITDA margins improved by 4 percentage points (ppts), which we believe is due to better operational efficiency relating to higher revenue.

• QoQ: 1QFY22 core profit climbed 30.9% despite revenue rising by only 8.8% QoQ. This is despite a higher effective tax rate of 8 ppts. In terms of geographical segment, revenues in Asia and the US continued to be stronger by 11.4% and 14.0% respectively, while Europe slid -1.0%.

• Outlook: Despite Covid-19 uncertainties and prospects of an uneven recovery of the global economy, the group believes the semiconductor industry will continue to show resilience. While MPI expects further challenges such as manpower limitations and supply chain disruptions, it anticipates a satisfactory performance in FY22.

• We like MPI premised on the group’s positive prospects arise from: (i) its portfolio rationalization strategy that focuses on higher-margin specialized projects; (ii) its leading market position in the ultra-thin MLP and increased R&D in MEMS sensors; (iii) its move towards producing silicon carbide power products with applications in EVs, servers, and renewable energy; and (iv) strong net cash position of RM914mil as at 30 Sep 2021. However, we deem the stock fairly valued, trading at PE multiple of +2 standard deviations from its 3-year average mean.

Source: AmInvest Research - 25 Nov 2021