• 2QFY19 core earnings fell 7.9% yoy as revenue came in flat while input cost rose due to silicon wafer shortage; EBITDA margin shrank 50bps to 25.8% as a result.

• Still, 1HFY19 core earnings grew 3.4% on strong 1Q results which saw higher sales contribution from the Asia segment (c.60% of revenue).

• Overall, 1HFY19 core earnings were broadly inline with ours and consensus estimates at 54% and 52% of FY19F.

• We are less positive on MPI due to: I) transformation of portfolio taking longer than expected, and ii) cost increase from silicon wafer shortage pressuring margins.

• No recommendation and TP as the stock was excluded from the Shariah-compliant list in Nov 2018.

Earnings dragged by higher net opex

2QFY19 core earnings fell 7.9% yoy to RM37.6m as net opex rose (+1.4%) while revenue was flat (+0.7%). Sales from the Asia segment remains the main contributor. In our view, opex increase was mainly caused by rising silicon wafer prices due to the supply shortage. As a result, EBITDA margin was under pressure, down by -50bps to 25.8%.

Weaker qoq sales from Asia & US segments

On qoq basis, core earnings fell 11.8% on weaker sales from Asia (- 4.7%) and US (-13.8%) segment. However, this was partly offset by stronger sales by the Europe segment which grew 6.4% to RM97m.

1HFY19 earnings supported by Asia segment

1HFY19 core earnings grew 3.4% to RM80.3m from RM77.7m largely on the back of higher sales from Asia segment (+10.5%) in 1Q which boosted earnings. However, EBITDA margin fell 60bps to 25.7% from 26.3% amidst higher opex. We believe this could be due to combination of higher silicon wafer prices and the impact from its product transition. Notwithstanding, the 1HFY19 core earnings were broadly inline with ours and consensus estimates at 54% and 52% respectively.

Non-rated for recommendation and TP

Our coverage on MPI is non-rated after it was excluded from the SC’s list of Shariah-compliant stock in Nov 2018. For its outlook, we are less sanguine over plans to grow within the automotive segment given protracted transition period. This is exacerbated by the rise in silicon wafer prices due to the supply shortage.

Source: BIMB Securities Research - 22 Feb 2019