MPI’s 1QFY20 core profit of RM38m (-10% yoy) was better than expected. However, at the revenue and pretax level, results were broadly within our expectations. We nevertheless raise earnings estimates by 18-26% and raise our Target Price to RM10.80 based on an unchanged 14x applied to CY20E EPS. While we are now projecting an EPS growth of 5% for FY20, management still remains fairly cautious on their outlook heading into 2020 given the challenging macro environment. Maintain HOLD.

1QFY20 Results Above Expectations

MPI’s 1QFY20 core net profit of RM38m (-10% yoy) was above expectations – accounting for 29% and 26% of our and the street’s full-year FY20 estimates. At the revenue and EBITDA level, results were broadly within our expectations. The earnings surprise was at the minority interest level which came in lower than expected. On the whole, while there was a favourable forex impact following the 1.7% yoy depreciation of the RM against the US$, this was negated by weaker demand as a result of the inventory imbalance and trade war, which resulted in the 11% yoy contraction in revenue. We believe that MPI’s communication and automotive segments are most impacted by this (combined c. 65% of group revenue). 1QFY20 EBITDA margins were, however, flat at 25.6%, +0.1ppts yoy. MPI announced an interim DPS of 10 sen (1QFY19: 10 sen).

1QFY20 Core Earnings Jump 20% Qoq

Sequentially, core earnings jumped 20% on the back of revenue growth (+7%) and slightly better EBITDA margin (+1.3ppts). Given the relatively stable revenue and earnings momentum and after adjusting for the minority interest amongst other slight housekeeping including a revision in our RM/US$ assumption, we raise FY20-22E EPS by between 18-26%.

Maintain HOLD, TP Raised to RM10.80

We maintain our HOLD rating but raise our TP to RM10.80 post our earnings upgrades but based on an unchanged 14x applied to our CY20E EPS. While we are now projecting a 5% earnings growth in FY20, management remains fairly cautious on their outlook amidst the uncertainties in the global economy and intends to focus on key areas including automotive, and to further drive operational efficiencies. Key risks include better-/lower-thanexpected demand and further depreciation/appreciation of the RM

Source: Affin Hwang Research - 27 Nov 2019