• FY18 core earnings fell 23% to RM137m on higher net opex due to the surge in raw material cost while revenue was impacted by unfavorable forex.

• As a result, EBITDA margin contracted 4.7ppts to 25% while FY18 core earnings trailed ours and consensus estimates at 89%.

• Our earnings are currently under review pending updates from management. Similarly, we put our call and TP on the stock is also under review.

Dragged by higher net opex

FY18 core earnings fell 23% to RM137m on higher net opex following the surge in raw material prices while revenue was impacted by the stronger Ringgit in 1HCY18. This led to lower EBITDA margin of 25%, down 4.7ppts from FY17. Overall, FY18 core earnings were trailed with ours and consensus expectation at 89%.

Better sales contribution in qoq

4Q18 core earnings, however, improved 66% qoq to RM37m as sales for all geographical segments, Asia, US and Europe improved, up by 8%/4%/8% respectively over the same period. However, core earnings fell 12% yoy despite a 1% revenue growth. This was due to higher net opex as raw material cost surged while unfavourable forex over yoy basis impacted revenues.

Earnings under review

While the transition to towards higher-margin automotive products are under way, intensifying competition within the legacy product (ie. consumer segment) could impede earnings during the transition stage. Our earnings are currently under review.

Call and TP under review

Similarly, our recommendation and TP are currently under review pending updates from management. We believe MPI’s plan to focus on higher margin products by focusing on the automotive segment could strengthen earnings in the long run. However, we throw caution over the potential competition intensifying within the space amidst the increasingly saturated consumer segment.

Source: BIMB Securities Research - 24 Aug 2018