- We maintain BUY on Malaysian Pacific Industries (MPI) with a maintained Fair Value of RM9.08/share, pegged to a FY16F PE ratio of 15x.

- MPI declared a higher interim dividend of 8sen in 1QFY16 (vs 1QFY15: 7sen).

- MPI’s 1QFY16 core earnings surged to RM46.9mil (+36.7% QoQ, +135.7% YoY), making up 38% of both our and consensus estimates.

- Most notably, MPI’s overall net margins have improved this quarter from 13% to 16.4% (+3.4ppt QoQ, +8ppt YoY).

- MPI’s outstanding performance was attributed to the better USD exchange rates and lower direct costs as a result of lower commodity prices. From our checks, the USD-MYR exchange rate averaged at RM4.05 during the current quarter (+12% QoQ).

- 1QFY16 revenue came in at RM386.2mil (+3.6 QoQ, +17.8% YoY), making up 26% of our full-year estimates.

- QoQ, EBIT contributions from USA and European customers have almost doubled respectively, while China customers’ EBIT remains unchanged. We attribute the success in USA and Europe to higher production rates of fat-margin products, such as the automotive MEMs sensors and ultra-thin MLP applications, whereas China’s production volumes slowed during the quarter.

- Exchange rate benefits aside, the outlook for MPI remains sound, having positioned itself with strong offerings in the high-growth segments of interconnectivity, sensors, Internet-of-Things, and custom automotive products. S&T and Automotives make up ~60% of MPI’s revenue.

- Despite the slower IMF global GDP forecast of 3.6% (vs 3.8% previously), we view that the semiconductor industry health indicators remain intact. The SEMI Book-to-Bill ratio in September 2015 hovered at 1.07, as compared to the last trough in Oct 2012 at 0.74. Furthermore, the YTD declines in Global Semiconductor Sales stabilised in September to RM28.4bil (+1.9% MoM).

- We leave our earnings estimates unchanged, while we await further clarification from the investor briefing later this morning.

- MPI’s dividend yield continues to be attractive at ~3%, while trading at an undemanding 12x FY16PE. Inari and Unisem trades at 14x and 13x respectively.

Source: AmeSecurities Research - 18 Nov 2015