• MPI reported a strong 3Q22 core earnings growth driven by solid jump in sales across all key markets. This was further aided by better cost management which saw EBITDA margin expanded by 5.6ppts to 31%.

• MPI’s long-term earnings outlook remains steady backed by recovery in the automotive industry and an increase in spending for cloud services. Additionally, we expect better contribution from MPI’s investment in new Technology innovation, Silicon Carbide (SiC) and Gallium Nitride (GaN) for higher voltage power applications.

• We reiterate our BUY call on MPI with a TP of RM44.20, pegged at 24x PER to 2023F EPS of 184.3 sen.

Earnings Growth Remains Resilient

MPI reported strong core earnings growth thanks to strong sales across all key markets. This was further boosted by better cost management which saw EBITDA margin expanded by 5.6ppts to 31% in 3QFY22.

Brighter Outlook Ahead

Despite challenging near-term outlook due to strict COVID-19 lockdown policies in China resulting in lower utilisation rate at MPI’s Suzhou plant, robust orders from customers and better margin products would eventually cushion the impact of softer sales from China’s plant. We expect MPI’s core earnings to grow at a 3-year CAGR of 15% from FY21- FY24F on stronger sales within the automotive and industrial segments which offer higher margins. We are also optimistic over its long-term prospects on the back of better contribution from its investment in new technology innovation, Silicon Carbide (SiC) and Gallium Nitride (GaN) for high voltage applications which can improve system performance and efficiency i.e., electrical vehicles (EV) batteries, servers, laptops/PCs, and consumer electronics. According to Gartner – a market research firm, global EV shipments is expected to grow by 26% YoY to 6m units which supports our optimistic view on the company. Similarly, MPI’s industrial segment is set to witness robust growth in revenue amid higher spending on cloud services in 2022 which is expected to grow by 20% YoY to USD495bn as organizations start to move away from traditional computing solutions.

Maintain a BUY call with TP of RM44.20

We maintain our BUY call on MPI with a target price (TP) of RM44.20, pegged at 24x PER to FY23 EPS of 184.3 sen. The upside potential is well supported by automotive sector recovery, strong take-up rate on new technology and strong fundamentals.

Source: BIMB Securities Research - 4 Jul 2022