Highlights

After successfully bucking the industry seasonal downtrend weakness with newly secured businesses (test services and assembly), MPI remained confident of industry outlook and is preparing for solid growth in 4QFY14 whereby revenue is guided to grow ~10% yoy.

To support that, MPI is escalating CAPEX up to RM90m, split equally over the next two quarters to procure new equipment for next generation products.

Carsem’s 3QFY14 EBITDA margin eroded by 3.0-ppt yoy and 4.0-ppt qoq (see Figure #1) chiefly due to the hike of electricity tariff beginning of this year with an impact amounted to RM2.0m per quarter. The typically weak quarter in China due to CNY along with additional cost for SuZhou Phase 2 also being blamed for the fall in margin.

Ipoh S-Site:

1. Test hub consolidation for tier 1 US customer is currently 75% completed and to be complete by June 2014;

2. MLP – continue to ramp 802.11ac FEM (X3.2 world thinnest) by world #1 WiFi fronted module design house. Gearing for a major phone release by fall; and

3. Tire pressure module sensor (TPMS) orders went up by 20% by world #4 MEMS automotive MEMS IDM.

Ipoh M-Site:

1. Started production of the impact pressure sensor (PM6) in March; and

2. Design underway for PM6 variant as a differential pressure sensor.

SuZhou:

1. LGA production with China #1 RF PA design house was delayed due to design related issues;

2. Second program on a LGA switch to start in 4QFY14;

3. FBGA – qualification with China #2 baseband design house. Sampling for acceptance; and

4. MLP – to start major ramp for USD tier 1 customer in 4QFY14 while MLP strip test began to ramp for world #1 AMOLED screen driver.

3QFY14 average utilization rate was ~80% although SuZhou’s hovered ~75%.

Revenue contributions from smartphone/tablet continued to strengthen by 1.0-ppt yoy to 34% at the expense of feature phone segment (see Figure #4).

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 - 2 May 2014