Malaysia Pacific Industries (MPI) 3QFY23 PATAMI slipped into the  red with a loss of RM17.8mn. However, excluding EI, core PATAMI  remained in the black at RM1.7mn. The disappointing 3QFY23  earnings was attributed to softer demand for consumer electronics products, shorter working hours due to CNY, and higher utilities cost. We slashed our FY23F-FY25 between 24% - 54% as we revised down our revenue and margin assumption. Downgrade our call to a  SELL from a BUY with a new TP of RM23.55 (from RM33.51). Our valuation is based on 22x PER (5-year historical forward average  PER) pegged to FY24F EPS of 107 sen.

• Below expectations. MPI 3Q23 PATAMI incurred a net loss of  RM17.8mn, though core PATAMI remained in the black at RM1.7mn (ex-EI). Despite our anticipation of lower earnings performance in 3QFY23, this turned worse-than-expected and missed both our and  consensus’ expectations.

• Dividend. MPI declared a second interim DPS of 25 sen (3QFY22: 25  sen), which brings the total DPS of 35 sen for FY23. The ex-dividend  and payment date are on June 1 and June 2, 2023.

• QoQ/YoY. Revenue declined by 10% QoQ and 23% YoY to  RM471.9mn due to 1) softer demand for consumer electronics  products, 2) shorter working hours during Chinese New Year (CNY), 3)  customers’ inventory adjustment, and 4) higher utilities and operating  cost. Additionally, Asia segment revenue which accounts for 50% of  total sales decreased by 15% QoQ and 39% YoY to RM236.8mn. As a  result, core PATAMI plummeted by 97% QoQ and 98% YoY to 1.7mn.

• YTD. 9MFY23’s core PATAMI fell by 56% to RM115.3mn mainly due to  1) softer demand for consumer electronics products globally and  customers’ inventory adjustment, 2) increase in net opex, and 3)  higher depreciation.

• Outlook. Given uncertainty and challenging operating environment  within the semiconductor industry, management guided that they will  emphasize and focus on business strategies and operational  efficiencies.

• Forecast. We slashed our FY23F/FY24F/FY25F earnings forecast by  54%/32%/24% in line with lower revenue and margin assumption  amid challenging outlook for the semiconductor industry.

• Our call. Downgrade our call to a SELL (from a BUY) with a new TP of  RM23.55 (from RM33.51) in tandem with our earnings revision and  less optimistic outlook on semiconductor industry in the near term.

Source: BIMB Securities Research - 19 May 2023