Investment Highlights

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

• MPI’s FY22 core profit of RM332mil came in within expectations, at 3% below our FY22F earnings and 4% above consensus. We retain our FY23F–FY24F earnings and introduce FY25F with a 3-year compounded annual revenue growth of 13% on the assumption of continuous growth in automotive and industrial segments.

• YoY, the group’s FY22 core profit rose 21% in tandem with a 22% growth in revenue. The robust revenue growth is primarily driven by positive contribution across all geographical segments, with the US expanding 27% YoY, followed by Asia (+20%) and Europe (+18%).

• On a QoQ basis, the group 4QFY22 core profit declined 4% to RM80mil due to higher operating costs coming from wages and energy. However, the softer 4QFY22 is within expectations. We expect further cost-related guidance from management in the investor briefing later today.

• 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, supply chain bottlenecks, persistently high inflation and talent shortages continue to be the key risks faced by the sector.

• Furthermore, the group acknowledged that China’s strict zero-Covid policy imposed around Suzhou and Greater Shanghai areas will have an adverse effect on its Suzhou’s operations. We are of view that the slight 3% QoQ decline in revenue in the Asian segment could be indirectly contributed by the neighbouring region’s lockdowns.

• Nonetheless, we remain upbeat on MPI, which is set to benefit from strong expected growth in EV. The group’s positive prospects arise from its: (i) 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) strong net cash position of RM772mil as at 30 June 2022 (11% of market capitalisation), which allows for strategic investments, M&A opportunities and greenfield expansion.

Source: AmInvest Research - 30 Aug 2022