KUALA LUMPUR: Malaysian Pacific Industries Bhd (MPI) is exploring potential mergers and acquisitions (M&A) targets to expand its portfolio offerings, says CIMB Equities Research.

It said in a research note on Tuesday that MPI is identifying companies with capabilities in manufacturing fan-out wafer level packaging, cavity package, module level assembly, 3D printing, flexible board etc. 

“Any potential M&A activity will leverage on its strong automotive engineering capabilities at Carsem M-Site, in our view,” it said.   

CIMB Research retained its EPS forecast. It also maintained its Add rating on the stock with a higher RM14.20 target price, based on a higher 15 times FY18F price-to-earnings (P/E), in line with the sector mean (vs. 14 times previously). 

 

“We expect MPI to register an FY16-19F EPS CAGR of 10%, driven by higher sales from newer and advanced packages, and better operating efficiency. Weaker smartphone and sensor demand and lower dividend payouts are key downside risks,” it said.

CIMB Research was among 50 analysts and fund managers who attended MPI’s Analyst Day held at Carsem S-site in Ipoh, Perak on Monday morning. 

“The visit yielded no surprises, but we were encouraged that MPI is targeting to outgrow global semiconductor industry demand, with a 5.5-7.5% sales guidance in FY18 driven by stronger sales from automotive and industrial (A&I) segment.

“The group reiterated its strategy of growing revenue and earnings from A&I segment that offers higher profitability than the consumer segment. For example, the group is targeting to raise the automotive revenue contribution to the group from 23% in FY16 to 50% in FY19 driven by growing electronics content adoption in vehicles and new design wins. 

“Nevertheless, it still expects to grow the communication segment driven by a healthy demand outlook from Chinese smartphone brands such as Huawei, Vivo and Oppo.

“The group also revealed its product pipeline over the next 12-18 months that will help it to boost group sales. 

“For example, MPI plans to start mass production of a new airbag sensor in 2QCY18 and new peripheral sensor in 1QCY19 that will boost its automotive sales beyond FY17. 

“Moreover, we were encouraged to learn that MPI will be the single source supplier for both sensor products, and this will allow the group to enjoy attractive margins for the first 3-5 years due to its exclusivity,” said CIMB Research.   

The research house also said MPI is also in the midst of a transformation to increase automation. 

For example, the group plans to add 70 vision inspection machines by 2018 to reduce its dependency on human interface in its final testing processes. 

MPI expects to have a fully automated line in the next two years. Overall, this is a not surprise given that MPI has already successfully reduced its headcount from 9,500 in 2014 to 8,000 in 2017. 

 

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