MPI’s 1QFY19 results showed a marked improvement with betterthan-expected revenue and margins. A key catalyst for this was the weaker RM against the US$ during the quarter although operationally, revenue has also improved, coming off from a low base the year before. We raise our earnings forecasts and lift our TP to RM11.35. Upgrade to HOLD.

1QFY19 Results Above Expectations

MPI’s 1QFY19 core net profit of RM42m (+12% yoy) was above expectations – accounting for 33% and 28% of our and the street’s fullyear FY19 estimates. The positive surprise came about on higher-thanexpected revenue (6% ahead of our estimate) and better-than-expected EBITDA margin of 25.5% vs. our earlier forecast of 23.7%. The earnings surprise was also partially due to our RM/US$ assumption; we had assumed a stronger RM than the actual average of RM4.09/US$. Considering that the exchange rate was more favourable to MPI in 1QFY18 when the currency averaged at RM4.26/US$, this implies that yoy revenue growth in 1QFY19 was in impressive double-digit territory. While better than expected, the EBITDA margin did not improve yoy (-1ppt yoy) suggesting an unfavourable shift in product mix. It is also worth noting that 1QFY19 depreciation declined by 13% yoy and helped with the stronger earnings growth yoy, which would otherwise have been relatively flat. MPI announced an interim DPS of 10 sen (1QFY18: 10 sen)

1QFY19 Core Earnings Jump 58% Qoq

Sequentially, core earnings jumped 58% on the back of revenue growth and a better EBITDA margin. The RM depreciated from an average of RM3.95/US$ in 4QFY18 to RM4.09/US$.

Upgrade to HOLD, TP Raised to RM11.35

We upgrade our FY19-21E EPS by 25-29% to reflect the stronger 1QFY19 earnings, and raise our 12-month TP to RM11.35 based on an unchanged target PER of 14x applied to our CY19E EPS. Upgrade to HOLD from Sell. Key risks include better/lower-than-expected demand and further depreciation/appreciation of the RM.

Source: Affin Hwang Research - 9 Nov 2018