Results

While 1HFY14’s revenue of RM647.0m came in within street’s estimate, core net profit of RM25.9m was slightly above expectation accounting for 53.5% of consensus’ full year forecast due to margin improvement.

For 2QFY14, MPI registered revenue of RM316.4m (+7.1% yoy, -4.3% qoq), EBITDA of RM63.2m (+25.8% yoy, -17.2% qoq), and normalized PATAMI of RM8.1m (>100% yoy, -54.7% qoq).

The discontinuation of stamped leadframe (l/f) operation in Dynacraft has resulted IN provision amounted to RM8m.

Deviations

Above expectations.

Dividends

None (2QFY13: none).

YTD dividend of 5.0 sen per share (1HFY13: 5.4 sen).

Highlights

2QFY14 revenue was higher by 7.1% yoy thanks to the improvements in USA (+12%) and Europe (+15%) segments while Asia segment was flat. However, it was 4.3% lower qoq as Asia segment experienced order reduction by 11%, undoing the 1% and 2% growths in USA and Europe segments respectively.

1HFY14 revenue grew 5.4% thanks to growth recorded in all segments where Asia, USA and Europe increased by 3%, 6% and 10% respectively.

Effective shift to higher margin product lines coupled with lower direct material cost and commodity prices have contributed positively towards 1HFY14’s EBITDA margin which came in at 21.6%, represent an expansion of 4.8- ppt yoy. Excluding the one-off RM8m provision, EBITDA margin would have been 22.8% (+6.0-ppt yoy) for 1HFY14.

Similarly, the provision had dragged 2QFY14’s EBITDA margin to 20.0%. If adjusted, it would have been 22.5%, marginally lower qoq by 0.6-ppt chiefly due to lower sales.

Comments

With the shutdown of stamped l/f business which traditionally contributes on average USD8m (RM26.4m) revenues per quarter, consensus may have factored in too much optimism.

Expect to grasp more insight, especially on the breakdown of Carsem and Dynacraft’s contributions from the analyst briefing which is scheduled later today.

Catalysts

• Improved consumer confident.
• Technological advancement and creation of new electronics applications.

Risks

FOREX and weak consumer demand.

Rating

Not Rated

Positives – Appreciation of greenback, proliferations of smartphones, tablets, wearable techs and hybrid / electric automobiles.

Negatives – intense competition from Taiwanese peers, higher input costs, challenging economic outlook which will eventually hampers consumer confident and stalemate in electronics innovation.

Source: Hong Leong Investment Bank Research - 28 Jan 2014