• Revenue and Earnings Rebounded Sharply in 4QFY20
• Results came in above our expectations. We raise our FY21-22E EPS by 4- 19%. We also raise our TP to RM15.20 based on a target PE of 17.5x applied on CY21E EPS or +1SD above its 5-year mean
• Stock price has gained 37% over the past 3 month and has largely reflected the improved financial performance. Maintain HOLD

FY20 Core Earnings Up 14% Yoy – Above Expectations

MPI’s FY20 core net profit of RM165m (+14% yoy) was better than expected. Overall, FY20 results accounted for 125% and 121% of our and street’s respective forecast. The positive surprise was largely due to a strong 4QFY20. Despite the lockdowns in China earlier in the year and in Malaysia thereafter, MPI saw a sharp rebound in revenue and hence earnings in 4QFY20. In fact, FY20’s earnings growth yoy is commendable considering the outbreak of the pandemic and its resulting circumstances. Margins have also been well preserved at 25.5% (flat yoy) despite the adversities. MPI’s FY20 DPS ended at 27sen, similar to a year ago.

4QFY20 Earnings Rebound Sharply

Sequentially, the revenue and earnings improvement was largely due to the low base last quarter, as a result of the lockdowns. However, an acceleration in business activity was possibly prompted by order backlogs that needed to be fulfilled, in our view. Revenue grew 8% qoq and this filtered down to better EBITDA margins, which grew 5.9ppts qoq to 27.2%. A lower than expected effective tax rate in 4QFY20 also aided the positive earnings surprise.

Maintain HOLD But With a Higher 12-month TP of RM15.20

While earnings momentum should remain positive going into FY21, lingering concerns over an imminent industry inventory imbalance, may negatively impact 2QFY21 performance. We raise our FY21-22E EPS by 19% and 4% respectively to reflect the strong results and introduce FY23E EPS of 94 sen (+5% yoy). Stock price has performed well over the past 3 months and is currently trading at a FY21 PE of 19x or > +1SD over its 5-year historical mean. Given the market liquidity, we think this may hold but believe that most of the positives are already priced in. Maintain our Hold rating. Key risks include lower/higher-than-expected demand, further appreciation/depreciation of the RM, and further slowdown in the semiconductor market.

Source: Affin Hwang Research - 1 Sept 2020