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Malaysian Pacific Industries - Bleak Outlook

kiasutrader
Publish date: Thu, 22 Nov 2012, 09:27 AM

As MPI's 1QFY13 earnings missed our estimates, we are cutting our FY13/FY14 core earnings forecasts by 52%/30% respectively. We maintain our NEUTRAL call on the stock, with a revised FV of RM2.70, based on 0.8x CY13 P/NTA. Given the lack  of  catalysts  in  the  near  term,  we  expect  the  stock  to  trade  sideways  for  the next three months. We advise investors to bottom-fish only in Feb or March 2013, to  ride  on  the  anticipated  uptrend  in  global  semiconductor  sales  in  2QCY13 (please see our 4 Oct 2012 report, 'Good Pickings Amid The Gloom'). 

2Q  revenue  to  be  flat.  During  its  analyst  briefing  yesterday,  MPI  guided  its  2QFY13 top-line to stay flat q-o-q. However, it is expecting 2HFY13 to be robust given the pent-up  demand  for  its  Micro  Leadframe  (MLP)  and  Quad  Flat  No-Lead  (QFN)  packaging offerings  in  Suzhou,  China.  We  understand  these  segments  are  operating  close  to 100% capacity utilization rate vs the group's average rate  of  70%.  Its  bottomline  is expected to remain black next quarter.
 
Riding  on  robust  smartphone  and  tablet  growth.  Global  demand  for  smartphones and  tablets  (S&T)  continue  to  be  vigorous,  despite  slipping  demand  for  other technological  products,  which  is  dragging  down  the  overall  global  semiconductor industry. Having repositioned itself to ride on the upside potential of S&T,  the segment now  accounts  for  30%-35%  of  MPI's sales.  During  the  July-Sept  quarter,  the  company also  added  three  new  S&T  product  lines  -  antenna  tuners,  front-end  modules  and proximity sensors. 

Update  on  Carsem/Amkor  dispute.  As  for  the  ongoing  Carsem/Amkor  dispute,  we understand that MPI had, on 5 Oct, submitted a petition for a rehearing at the Court of Appeal. We also  understand  that  no  monetary  remedies  will  be awarded  to the  winner and  in  the  event  that  MPI  loses  '  the  worst  case  scenario  '  it  will  only  have  to  halt shipments into the US (less than 1% of total shipments). Note that a US customer may not necessarily have to be US-based, as most shipments are directed to Asia anyways.

Maintain  NEUTRAL,  FV  revised  slightly  lower  to  RM2.70.  Given  a  tepid  2QFY13 outlook and a traditionally weak 3Q, we do not see MPI being able to meet our previous projections.  As  such,  we  are  cutting  our  FY13/FY14  core  earnings  forecasts  by 52%/30%  respectively,  as  we  had  been  overly  aggressive  with  our  previous  revenue and profit margin assumptions. Accordingly, we are lowering our FV to RM2.70, based on the same 0.8x CY13 P/NTA (40% discount to the historical five-year sector average of 1.4x). Maintain NEUTRAL in light of minimal rerating catalysts on the horizon.
Source: OSK
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