Investment Highlights

• We maintain our BUY call on Malaysian Pacific Industries (MPI) albeit with a lower fair value of RM46.48/share, pegged to a normalised CY22F PE of 25x (previously RM59.50/share, pegged to CY22F PE of 32x). Our target PE represents MPI’s 3- year average forward PE.

• MPI’s 1HFY22 results came in within our expectation but exceeded consensus, accounting for 53% and 58% of our and consensus’ FY22F earnings. As the first half average of FY15- FY21 accounted for 52% of MPI’s full-year net profits, we keep our forecasts unchanged.

• The group’s 1HFY22 core profit surged 65% YoY to RM193mil, after excluding gross dividend income from short-term investments of RM5mil, which was partially offset by provisions and write-offs of slow-moving inventories.

• The higher core profit was primarily driven higher overall YoY sales across business segments with Asia growing 28%, the US 32% and Europe 30%. MPI also commendably showed improvement in its gross profit margin by 3% points to 23%, despite logistic disruptions and material shortages.

• QoQ, MPI’s 2QFY22 revenue increased by 4% while core profit accelerated by 42%. 2QFY22 EBITDA margin improved 5% points to 35% and PBT margin by 4% points to 24%, driven by economies of scale with MPI reaching a record quarterly revenue above the RM600mil threshold.

• The group’s business outlook remains strong, supported by industry trends with global EV sales up 98% YoY and spending on global cloud infrastructure services growing by 35% YoY. While installing more machines to cater for its expansion, MPI is also seeking more anchor customers to secure more guaranteed business in the future. The group is investing in R&D and Industry 4.0 to deliver 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 early move to produce SiC and GaN power products which have applications in EVs, servers, renewable energy and consumer gadgets; (ii) continuous investment in automation for cost optimisation; and (iii) its strong net cash position of RM865mil as at 31 Dec 2021 (11% of market capitalisation), which allows for strategic investments, M&A opportunities and greenfield expansion.

Source: AmInvest Research - 28 Feb 2022