Highlights

Continuous operational excellence has revived MPI’s YTD financial performance back into the black despite a traditionally soft quarter for the industry. The softness in consumer (PC) market remains stubborn but this was partly cushioned by the take up in smartphone / tablet market along with a firmer demand from automotive markets.

Analysis by operating unit revealed that overall performance was actually dragged by Dynacraft which recorded 9MFY13 LAT of RM10.1m, neutralizing Carsem’s PAT of RM11.3m for the same period.

However, manufacturing and material cost reduction initiatives lifted EBITDA margin to a healthier level. Carsem’s 3QFY13 EBITDA margin improved by 4-ppt yoy and 3-ppt qoq to 21%, boosting YTD’s figure to 20% (+4- ppt yoy). Similarly, Dynacraft’s 9MFY13 EBITDA margin also improved by 5-ppt to turned positive at 2%.

Cost reduction initiatives: 1. Increasing productivity by decreasing man-to-machine ratio and automating inspection process; 2. Centralizing raw material procurement to enjoy cost savings through bulk purchase.

YTD revenue contribution from USA gained 4.9-ppt yoy reaching 30.3% on the back of high demand for smartphone and tablet centric products whilst both Asia and Europe’s shares shredded by 2.4-ppt each.

Hi-Den and MLP products which commands higher margin accounted for 82% of overall sales.

To date, MPI has shipped a total of 0.5bn unit of radio frequency chips (a multi-die MLP product) for smartphone / tablet and communication markets. During the quarter, MPI has successfully contracted 3 new RF customers as well as producing chips for Xbox 720.

MPI has also introduced extremely thin MLP to challenge WLCSP conferring benefits including ultra-thinness, cost effectiveness, speed to market, multi-die capability and robustness.

MPI optimistically guided for a potential double-digit revenue growth in 4QFY13 with the anticipation of robust growth in smartphone and tablet market coupled with expanded customer base in value-added MLP.

Catalysts

Resolution of European debt crisis, improved consumer confident, innovation to further drive spending.

Risks

Intense competition from Taiwanese peers, contagion effect of European debt crisis, FOREX, weaker consumer demand and stalemate in electronics innovation.

Rating

Not Rated

• Positives – Proliferations of smartphones, tablets and hybrid / electric automobiles.
• Negatives – intense competition from Taiwanese peers and appreciation of MYR against USD along with challenging economic outlook which will eventually hampers consumer confident.

Source: Hong Leong Investment Bank Research - 02 May 2013