Investment Highlights

• We maintain our BUY call on Malaysian Pacific Industries (MPI) with a fair value of RM45.16/share (previously RM46.48/share), pegged to a normalised CY23F PE of 26x. Our target PE represents 1 standard deviation above MPI’s 5-year average forward PE. We continue to ascribe a neutral ESG rating of 3 stars to MPI.

• MPI’s 9MFY22 core profit came in below our expectation but within consensus, accounting for 69% our earlier FY22F earnings and 76% of consensus estimates. As the average 9M results for FY15–FY21 accounted for 74% of MPI’s fullyear net profit, we moderated our growth assumptions and lowered FY22F–FY24F earnings forecasts by 7%.

• The group’s 9MFY22 core profit rose 27% YoY to RM253mil, after excluding provisions of slow-moving inventories of RM5mil, which was partially offset by a gain on derivatives.

• The higher 9MFY22 core profit was primarily driven by higher overall YoY sales across geographical segments with the US growing 28%, followed by Asia (+25%) and Europe (+22%).

• While MPI’s 3QFY22 revenue was flattish QoQ at RM612mil, its pre-tax profit slid 5% to RM110mil due to higher operating cost, which eroded its pre-tax margin by 1% point to 18%.

• For the quarter under review, the group declared a dividend of 25 sen. This brings 9MFY22F total dividend to 35 sen, a 17% increase compared to 30 sen for 9MFY21.

• The group’s business outlook remains strong, supported by buoyant industry trends with escalating global EV demand and growing cloud infrastructure services for businesses embracing digitalisation. However, persistent supply chain disruptions, rising inflation and talent shortages continue to be the key risks faced by the sector.

• Furthermore, while we note that MPI’s Suzhou plant remains operational despite China’s strict zero-Covid policy, we are of view that the flattish QoQ revenue growth in the Asia segment could be indirectly contributed by neighbouring region’s lockdowns. We expect further guidance in the upcoming investor briefing later today.

• Nonetheless, 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 silicon carbide (SiC) and gallium nitrate (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 RM849mil as at 31 Mar 2022 (14% of market capitalisation), which allows for strategic investments, M&A opportunities and greenfield expansion.

Source: AmInvest Research - 27 May 2022