• MPI Posted Its Best-ever Quarter in 1QFY21
• Core profit grew 61% yoy and results were above expectations, accounting for 35% of forecasts. We raise FY21-23E EPS by 35-38% and lift our target price to RM25.10 based on +2SD above its 5-year mean
• We Believe the Good News Is in the Price. Maintain HOLD

Best-ever Quarter

MPI’s 1Q21 revenue and core net profit of RM441m (+19% yoy) and RM62m (+61% yoy) reflect its best-ever quarter recorded. While we believe that operations continue to recover due to fulfilment of backlog orders, we also suspect that the company is benefiting from an increase in business activity in China. Likewise, with the Covid-19 pandemic resulting in countries reverting to lockdowns, there is also the possibility that companies have begun building buffer inventory to ensure minimal disruption within the supply chain.

1Q21 Core Earnings Up 61% Yoy – Above Expectations

Overall, 1Q21 core earnings were above expectations, accounting for 35% of our and the street’s full-year respective forecasts. The positive surprise was driven by a combination of better-than-expected revenue and margins. EBITDA margin came in at 27.8% (+2.2ppts yoy), ahead of our previous forecast of 25.7%. We believe this could be due to a combination of revenue mix as well as better operating leverage. Sequentially, revenue and core earnings improved 9% and 17% respectively. Despite the strong set of results and its strong net cash position of RM943m, MPI maintained its DPS at 10 sen, similar to 1Q20. In view of the better-than-expected results, we raise our FY21-23E EPS by 35-38%

Maintain HOLD But at a Higher 12-month TP of RM25.10

Shares are currently trading at 20x CY21E EPS or near +2SD its 5-year historical mean PE of 13.4x. While valuations are looking stretched, the stock has moved alongside the other technology names given the market liquidity and strong interest in the sector and is trading at a 23% discount to our 2021E industry peer average of 26x. Based on a target PE of 21x or at +2SD its mean, we raise our 12-month TP to RM25.10 (previously RM15.20 based on target PE of 17.5x). 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 - 26 Nov 2020