Investment Highlights

• We maintain our HOLD recommendation on Malaysian Pacific Industries (MPI) with unchanged forecasts and fair value of RM13.11/share. Our fair value is pegged to a CY18F PE of 13x, in line with the average of the semiconductor manufacturing sector.

• MPI's 1QFY18 core net profit came within our expectations and consensus at RM38mil (+12% YoY, -19% QoQ). The net profit accounted for 20%/19% of our/street estimates. Note that this is after stripping out net forex losses amounting to RM1.3mil (net of gains from hedging).

• The QoQ dip in 1QFY18 net profit was mainly attributed to the weakening of the USD against ringgit (USD/MYR), which had on average depreciated circa 2% compared to the previous quarter.

• On a YoY basis, 1QFY18 earnings rose on the back of an 8% expansion in revenue, which was mainly driven by an appreciation in USD/MYR. The average rate in 1QFY18 was approximately 7% higher compared to the average rate in 1QFY17.

• Going forward, we believe earnings will pick up in 2HFY18 as the company's new product introductions (NPIs) over the past three quarters translate into job wins. Note that it would typically take 9 months to 1 year to progress from NPIs to commercial production, should customers decide to engage MPI.

• The group declared a dividend of 10 sen per share during the quarter, in line with our projection.

• The company's prospects remain bright due to its exposure in the automotive segment. We estimate its revenue from the automotive division will grow at a 7% CAGR from FY17-FY20F on the back of rising global light vehicle sales and growth in semiconductor content in automobiles.

• In addition, the company is well positioned to ride on the wave of surging connected devices, as its MLPs are ideal in the area of RF applications.

• In spite of MPI's bright prospects, we believe the company is fairly valued at this price. MPI is currently trading at a CY18F PE of 13.5x, while the average of the semiconductor manufacturing sector is 13x.

Malaysian Pacific Industries

Source: AmInvest Research - 9 Nov 2017