Hang in there

• MPI returned to the Shariah stocklist in Nov 2019 after addressing its conventional cash level. We are sanguine over its business prospects given increasing demand from China.

• MPI is investing over RM30m into its Suzhou plant and is expected to complete by 2QFY20. The plant currently runs at 104% utilisation rate.

• Nonetheless, near term earnings risks are inherent amidst the slowdown in global automotive industry. However, MPI aims to sustain EBITDA margin at 24-27% through effective cost control and focusing on high margin products.

• We reinstate our BUY call with an EV/ROIC-derived (based on GGM formula) TP of RM12.75 which values the stock at 18x/13x FY20/21F PE.

Returns to Shariah-compliant list 

MPI returned to the Shariah-compliant stocklist as at 28 Nov 2019 after addressing its conventional cash level (Table 1). As at FY19, MPI’s cash conventional account to total asset was at 12%, below the 33% threshold set by the Shariah Advisory Council Securities Commission (SACSC) benchmark (Table 2).

Surge in demand from China market

During 1QFY20 analyst briefing, management guided that the demand from China is growing across all segments (consumer, automotive and industrial). Currently, the Suzhou plant runs at 104% utilisation rate. MPI plans to invest over RM30m for Phase 1, to be completed by 2QFY20. It expects the investment to payoff in FY21 given strengthening sales pipeline in China.

Long-term prospects remain intact

We are sanguine over its long long-term business prospects as we expect earnings to grow at 3-year CAGR of 16% over FY19-21F on better contribution from the automotive and industrial segment. Besides, MPI aims to sustain EBITDA margin at 24-27% by focusing on high margin products from automotive segment and effective cost control.

Reinstate with a BUY, RM12.75 TP

We reinstate our BUY recommendation with an EV/ROIC-derived (based on GGM formula) TP of RM12.75 (WACC: 9.2%, 1%). This implies an FY20/21F PE of 18x/13x. We believe this is fair as we expect better global demand for sensors within the automotive space, where MPI intends to focus on, which bodes well with its aim to improve margins.

Source: BIMB Securities Research - 2 Dec 2019