Weaker outlook, in line with global numbers. During yesterday's analyst briefing, management guided that MPI's sequential q-o-q top-line is likely to decline, or remain flat at best. Over the past month, management saw and acknowledged that its sales numbers were sluggish given the reduced inventory re-stocking initiatives among customers. The earlier expected recovery in 2H seems highly unlikely now. Management did not shed light on its bottom-line outlook going forward.

Strong take-up for new packages going into smartphones and tablets. According to MPI, sales of new packages going into smartphones and tablets (S&T) have continued to gain traction in 4QFY12. This high growth segment now accounts for almost 45% of its product mix compared to a year ago at only approximately 15%. During the briefing, we glimpsed into a stripped down Samsung Galaxy SIII as well as the new Apple iPad ' the devices had numerous MPI products embedded in them, ranging from accelerometer to communication chips. Besides Samsung and Apple, the company also has exposure to other major S&T players. Management foresees strong persistent demand for S&T and thus, its FY13 capex will be directed mostly to this area. MPI targets capex of RM200m for next year.

Phase 2 of Carsem Suzhou qualified. MPI's wholly-owned subsidiary, China-based Carsem Suzhou (CS), has been qualified to commence operations of its phase 2 cleanrooms. CS' Micro Leadframe Package (MLP) capacity has increased by four-fold from 5m units/day to 20m units/day. We also gather that the first volume of products will be shipped in 1QFY13. Recall that the company has in 3QFY12 secured a new customer, a leading smartphone producer, which is expected to add some USD25m/year to its revenue. Currently, CS contributes 15%-20% to MPI's total top-line but that may possibly increase to 30%-40%, after incorporating the new customer.

Big enough portfolio of clienteles to mitigate single customer concentration risk. Management is comfortable with MPI's client mix ' its top 10 customers contribute 74% of sales while the top 30 account for 96%. Also, we gathered that its biggest customer, an integrated device manufacturer (IDM), contributes approximately 14% to its top-line.

Downgrade to NEUTRAL with revised FV of RM2.72. In view of the strong demand for new S&T-related products and contributions from CS' new customer, we are nudging up our FY13 revenue forecast slightly by 3%. However, we are cutting our FY13 net profit estimate by 14% to incorporate higher opex assumptions. We also take the opportunity to introduce our FY14 financial forecasts. We are downgrading the stock to NEUTRAL, with a revised FV of RM2.72 based on 0.8x CY13 P/NTA (reverting back to a 40% discount to the historical five-year sector average of 1.4x). The downgrade is to reflect the weaker outlook of the global semiconductor sector.

Source: OSK