Investment Highlights

• We maintain our BUY call on Malaysian Pacific Industries (MPI) with unchanged forecasts and fair value of RM46.48/share, pegged to a normalized CY22F PE of 24x. Our target PE represents MPI’s 3-years average forward PE.

• MPI’s 2QFY22 revenue growth YoY was largely derived from the automotive segment which rose by 45%, and the industrial segment at 44%. However, the consumer & communication segment declined 2% YoY while PC & notebook shrank 5% YoY. The automotive segment contributed 38% of 2QFY22 revenue, industrial 32%, consumer & communication 22% and PC & notebook 7%.

• MPI has numerous expansion plans in its pipeline. In Dec 2021, the group has entered into an agreement to set up a new plant in Suzhou Industrial Park Suxiang Corporate Zone, with a target completion date of Jan 2024. This is in addition to the recently completed 2nd phase of level 2 expansion for Carsem Suzhou in Sep 2021, which added 4,400 square metres for radio frequency and flip chips packaging.

• As for Malaysia’s expansion, MPI is adding capacity to its Carsem S-Site in Ipoh, with a view to capture additional business in the growing automotive and industrial segments. The expansion is targeted to be completed by Oct 2022, which the management has guided that additional business has been secured for the additional capacity.

• In addition to capacity expansion, MPI has identified 5G testing as the next area for growth. The group is currently working with its customers for 5G device testing and has invested more than US$5mil in 5G testing machines in 2021. We expect this segment to ramp up in 3 years, barring any unforeseen circumstances.

• The group’s business outlook remains strong, supported by industry trends with global EV sales up 71% YoY and spending on global cloud infrastructure services growing by 34% YoY in 2021. 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 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 RM865mil as at 31 Dec 2021 (11% of market capitalization), which allows for strategic investments and M&A opportunities and greenfield expansion.

Source: AmInvest Research - 1 Mar 2022