• Strong earnings momentum is sustained into 2QFY21, margins expanded further aided by operating leverage
• 1HFY21 core profit grew 44% yoy and results were above expectations accounting for 53% and 65% of our and the street’s full-year expectations
• We raised the FY21-23E EPS by 10-15% and lift our target price to RM47.50. Stock still trades at a relative discount to peer Unisem (UNI MK, RM8.97, Hold), and we believe this will likely narrow. Maintain BUY

Another Record Quarter

MPI’s strong earnings momentum continued into 2QFY21 even after the record quarter posted in 1QFY21. Revenue and core net profit improved to RM484m (+10% yoy) and RM67m (+9% yoy) respectively. We believe this was driven by the strong demand upcycle and especially the increase in business activity at its Suzhou plant in China. With the stronger revenue, the EBITDA margin improved further by 0.5ppts qoq to 28.3%, which we believe was contributed by operating leverage.

1HFY21 Core Earnings Up 44% Yoy – Above Expectations

Overall, 1HFY21 core earnings were above expectations, accounting for 53% and 65% of our and the street’s full-year forecasts, respectively. The positive surprise was driven by better-than-expected margins. The 1HFY21 EBITDA margin came in at 28.1% (+1.2ppts yoy) ahead of our previous forecast of 27.6%. We raise our FY21- 23E EPS forecasts by 10-15% to account for the better margins.

Maintain BUY With a Higher 12-month TP of RM47.50

Stock price is up 24% over the past month and has continued to rally alongside other technology names. Despite this, at 30x FY21E EPS, the stock still trades at a discount to the OSAT peer average. Given the market liquidity and strong interest in the sector driven by the semiconductor upcycle which has resulted in global supply tightness, we maintain our Buy rating. The TP is raised to RM47.50 (from RM41.50) based on an unchanged target PE of 34x on FYE6/22 EPS. Key risks include lower -than-expected demand, further appreciation of the RM, and further slowdown in the semiconductor market.

Source: Affin Hwang Research - 26 Feb 2021