Following MPI's analyst  briefing,  we  maintain  our  NEUTRAL  call  on  the  company, with an unchanged FV of MYR2.70. Although we  like what it is doing internally, the external  environment  has  not  been  as  supportive.  We  are  cautiously  optimistic  on the  semiconductor  sector  because  despite  the  positive  indicators  shown  recently, its outlook visibility remains low.  
 
3QFY13 revenue to be flat q-o-q. During its analyst briefing yesterday, MPI attributed the q-o-q  decline  in  its  2QFY13  revenue  to  the  persistently  soft  demand  from  its  leadframe business.  However,  management  shared  that  its  high  yielding  offerings  like  the  micro leadframe  packaging  (MLP)  and  its  turn-key  test  service  business  continued  to  grow robustly.  Management  guided  that  3QFY13  revenue  will  be  broadly  similar  to  that  of 2QFY13 and cited strong growth potential in 4QFY13 and beyond.

High-margin  business  paying  off.  Compared  to  a  year  ago,  we  think  MPI  has  indeed positioned itself very well by successfully transitioning  into the high-margin businesses of: i)  high density packaging,  ii) MLP,  and iii) test. The company's 1HFY13 EBITDA grew by 41%  y-o-y,  while  its  EBITDA  margin  expanded  by  4.4%  y-o-y.  In  the  MLP  space, management highlighted that the company had shipped more than 200m units of products related to its radio frequency (RF) and multi-die businesses in 1HFY13.

Maintain NEUTRAL, FV unchanged at MYR2.70. Although we are positive with what MPI is  doing  internally  to  turn  around  and  flourish  its  business,  the  external  environment  may be  an  obstacle,  suppressing  its  prospects.  Visibility  of  the  semiconductor  sector  remains short  but  with  the  recent  positive  indicators,  we  are  cautiously  optimistic.  Hence,  we maintain our NEUTRAL recommendation on the stock, with an unchanged FV of RM2.70, based  on  0.8x  CY14  P/NTA  (40%  discount  to  the  historical  five-year  sector  average  of 1.4x).

The company's 1HFY13 EBITDA grew by 41% y-o-y, while its EBITDA margin expanded by 4.4% y-o-y.  This  indicates  the successful  transitioning over to the high margin businesses.

We  are  not  concern  with  the  low  capex  spending in  2QFY13  given  that  MPI  had  aggressively  done so in the two previous quarters.

S&T-related products still growing robustly. The smartphone and tablet (S&T) segment continues  to  weigh  in  heavily  on  MPI's sales,  representing  approximately  33%  of  its  top-line.  Regionally,  its  US  business  was  the  prime  beneficiary  of  the booming  S&T  segment whereby  its  revenue  grew  by  22.5%  y-o-y  in  1HFY13.  We  understand  that  RF,  Bluetooth modules,  microelectromechanical  systems  (MEMS)  and  gyroscopes  were  the  main contributor of growth in the S&T segment.
 
Automotive  segment  still  relevant.  Management  also  shared  that  its  legacy  leaded packages is still an important business as MPI intends to support the mature industries of: i) automotive, ii) industrial and iii) consumer electronic appliances. It was highlighted that the automotive  industry  is  relatively  stable and  secure,  providing  MPI  sound  basis  for  organic growth  moving forward.  Note,  currently  half  of the leaded  packages  business  comes  from this segment.

Update on the Carsem/Amkor dispute. As for the ongoing Carsem/Amkor dispute, on 15 Sept 2012, MPI's 70%-subsidiary  Carsem  had  filed  a  request  to  the  US  Patent  and Trademark  Office  (PTO)  to  re-examine Amkor's 277 patents. On  10  Jan  2013,  the  PTO issued  an  Office  Action  rejecting  all  25  claims  on   the  patents,  including  11  claims  of  the International  Trade  Commission  (ITC)  proceedings.  Amkor  is  now  required  to  respond within two months.

Source: OSK