Investment Highlights

• We upgrade our call on Malaysian Pacific Industries (MPI) to BUY from HOLD with higher forecasts and fair value of RM59.50/share (previously RM49.54/share), pegged to an unchanged PE of 32x. We make no ESG adjustment to reflect our 3-star rating (Exhibit 4).

• We raise our FY22, FY23 and FY24 core profit forecasts by 20%, 34% and 32% to RM366.6mil, RM459.6mil and RM509.0mil respectively. This is to account for brighter automotive and industrial outlook, which is poised to benefit MPI due to its strategic position underpinned by its power products investments, such as silicon carbide (SiC) and gallium nitride (GaN).

• End-user segment update: MPI’s revenue growth largely came from the automotive and industrial segments, which expanded 15% and 12% QoQ respectively, contributing 37% and 31% of its revenue. The consumer & communication segment’s growth remained flattish, while growth for the PC & notebook segment declined 5% QoQ.

• Capital expansion progress: MPI continues to invest in identified technology drivers for growth such as 5G, SiC, GaN, electrification, sensors and safety for the automotive sector. In Sep 2021, the group completed its 2nd phase of level 2 expansion for Carsem Suzhou, adding 4,400 sq metres to the plant. The group is also scouting for new land in China, with aim of setting up another facility to cater for growth in SiC-related products.

• Outlook: The group’s business remains strong, supported by industry trends, with global EV sales up 98% YoY and global cloud infrastructure services spend growing by 35% YoY. MPI continues to install more machines to cater for its expansion. It is also seeking more anchor customers to secure more guaranteed business in the future, and investing in R&D and Industry 4.0 to deliver the higher product quality and achieve better efficiencies.

• We remain upbeat on MPI, which is set to benefit from the expected strong growth in the EV space. The group’s positive prospects arise from: (i) its move to produce SiC and GaN power products with applications in EVs, servers, renewable energy and consumer gadgets; (ii) continuous effort to invest in automation for cost optimization; and (iii) its strong net cash position of RM914mil as at 30 Sep 2021, which allows for strategic investments and M&A opportunities and greenfield expansion.

Source: AmInvest Research - 29 Nov 2021