We came away from the group’s 3QFY13 post-result briefing feeling more positive with the group’s effort to grow its high margin products. Management itself is of the view that the industry outlook has slightly improved and it expects a positive sales growth in 4QFY13 amid the company’s continuous effort to drive up its high margin products. We reckon this is quite possible as the group’s sales are now on the mend despite the still challenging industry landscape amid the prolonged economic uncertainty. Post-briefing, we have lowered our FY13 earnings estimate to RM3.6m from RM7.7m after imputing in a higher taxation assumption while our FY14 and FY15 earnings estimates remained unchanged. Despite the earnings revision, our target price, however, remains unchanged based on a targeted FYE14 PBV of 0.78 (close to -1.0 SD below its historical 3-year mean). We maintain our MARKET PERFORM rating.

Further details on 3QFY13 results. MPI netted a RM1.8m net profit (NP) in 3QFY13, bringing its 9MFY13 back into the black with a YTD NP of RM0.173m on the back of stringent cost controls of its manufacturing/material costs. In terms of the segmental revenue breakdown, the smartphone/tablet segment was the largest contributor to the revenue at 33% in 9MFY13 (or +11ppts YoY) at the expense of the shrinking market share of the PC segment (10% in 9MFY13, -5ppts YoY). This was mainly driven by the consumer preference shift from PC to smartphone/tablets. The feature phone (14% in 9MFY13, -4ppts YoY) and industrial (22% in 9MFY13, -3ppts YoY) segment market shares have continued to shrink on the back of a softer demand amid frail economic conditions while the automotive segment market share remained relatively unchanged at 21%.

Higher margin products to further improve the group’s EBITDA margin going forward. Management reiterated that it would continue to focus on the high margin products (such as High Density (HD), micro lead frame package (MLP) and its turnkey test business) going forward in order to drive up its EBITDA margin. The company has also widened its customer base by adding three more customers (from its existing three customers) in its MLP business (with products such as multi-die MLP, RF application and MEMS, which are widely used for smartphone/tablets and other applications). To date, the group has more than 500k units of its MLP products shipped.

Expecting a positive sequential revenue growth in 4QFY13. Management expects to see a decent positive sequential revenue growth (at a double-digit growth potentially) in 4QFY13 on the back of robust growth in smartphone/tablets driven by its customer base widening in the value-added MLP. We reckon this target is possible as the group’s sales are on the mend despite the challenging industry landscape amid the prolonged economic uncertainty.

Other guidance. The group’s FY13 capex guidance remained unchanged at RM170m-RM180m for now. For FY14, management has guided for a capex of RM150m. Nonetheless, management said it might relook to increase the capex (not more than its EBITDA level) should the recovery firmed up in 4QFY13.

Our take post the results briefing. We are now more sanguine on the group’s outlook with its increasingly strong position in its high margin products. Post-briefing, we have increased our EBIT margin from 1.2% to 1.9% in FY13 to reflect on the higher margin it had enjoyed from its successful strategy implementation. Nonetheless, our FY13 earnings estimate has been lowered to RM3.6m from RM7.7m to account for the higher taxation rate in FY13 (from 36% to 80%). Meanwhile, our FY14 and FY15 earnings remained relatively unchanged. We have also slashed our FY13 DPS assumption to 9.1 sen (from 10 sen previously) to align it with the group’s YTD declared dividend.

Source: Kenanga