Investment Highlights

• We maintain BUY on Malaysian Pacific Industries (MPI) with a higher fair value of RM13.79/share (previously RM11.42/share) based on a CY19F PE of 14x (rolled forward from FY19F). We have adjusted our FY19F-FY20F forecast upwards by 1% for housekeeping reasons.

• MPI’s FY18 core net profit of RM127.7mil (-30% YoY) missed our forecast and consensus estimates by 6% and 8% respectively largely due to higher-than-expected material costs.

• MPI's 4QFY18 core net profit (stripping out forex gains/losses) climbed 13% QoQ to RM26.5mil, but was down 42.9% YoY. This is due to the unfavourable USD during the previous 3 quarters.

• We believe the QoQ jump in 4QFY18 net profit was due to the strengthening of the USD against the ringgit, which traded in the region of 4.00 this quarter vs. 3.89 in the previous quarter.

• On the revenue front, MPI registered a higher revenue for 4QFY18 (+7.3% QoQ, +1.0% YoY), while FY18 revenue was flattish. Higher sales within the Asia region (+4.2% YoY) was largely offset by softer demand from the US (- 6.3% YoY) and Europe (-5.6% YoY).

• Moving forward, the company's exposure in the automotive segment offers bright prospects, backed by rising global light vehicle sales and growth in semiconductor content in automobiles. Furthermore, MPI’s strong net cash position opens up opportunities for the group to acquire new technologies, particularly in the automotive space. This comes in line with the group’s 5-year plan of achieving 50% of its revenue derived from the automotive segment. Currently, the automotive segment represents 25% of total group revenue.

• In addition, MPI’s revenue is denominated in USD while only about half of its costs is in USD. We understand that MPI only hedged circa 38% of its USD exposure. Therefore, the group is a net beneficiary of the strengthening USD.

• MPI is currently trading at a CY19F PE of 12x, below its 5- year average of 15x, while FY19F-FY21F dividend yield remains decent at 2%-3%.

Source: AmInvest Research - 24 Aug 2018