Period

3Q16/9M16

Actual vs. Expectations

Within expectations. The group reported 3Q16 core net profit (NP) of RM31.7m (-1% QoQ; +2% YoY), bringing 9M16 core NP to RM111.1m (+44%) which made up 77%/72% of our/ consensus’ FY16E NP, respectively.

Note that the 9M16 core NP has been adjusted for: (i) deferred taxation allowance of RM23.7m following a tax incentive granted to Carsem (M), (ii) unrealised forex losses of c.RM30.9m arising mainly from the timing difference of billing and collection rates, (iii) insurance claims of RM16.7m by Dynacraft (incident happened in 1Q16), all net of equity accounting.

Dividends

Above expectations. A second interim single-tier DPS of 15.0 sen was declared, bringing YTD net DPS to 23.0 sen which topped our and the consensus’ previous DPS forecasts of 20.0 sen and 21.7 sen, respectively. Key Result

Highlights

YoY, 9M16 revenue increased by 10% with better sale contributions from customers in all three countries. Meanwhile, headline EBIT spearheaded 39%, which was driven by the better product mixes on better yielding products (such as high value-add MLP for the Smartphones/Tablets (S/T) segment and automotive MEMs sensors) coupled with ongoing strengthening of USD against MYR. Note that USD/MYR exchange rate improved by a quantum leap of +23.2% from average RM3.39/USD in 9M15 to RM4.18/USD in 9M16.

QoQ, while 3Q16 revenue (USD) dropped by 5% on seasonality weakness, sales in MYR terms dropped further by 7% aggravated by weaker USD vs MYR (USD depreciated by 2.1% against MYR; from an average of RM4.28 in 4QCY15 to RM4.19 on average in 1QCY16). However, at the bottomline, the group’s PATAMI registered a narrower drop of 1.3%, helped by the lower realised forex losses (of c.RM11m vis-à-vis RM16m in 2Q16).

Outlook

Management is guiding for a rebound sequentially at its top line (of 5% in USD terms) on the back of higher demand for its flip chip - chip scale packaging on Smartphone and GPS applications which we think is achievable (vs. our assumption of +7%) amid the major launches of several flagship smartphone models.

However, we believe that the revenue improvement in MYR terms will not be evident given the adverse currency fluctuations, of which the MTD USD/MYR currency is averaging at RM3.90/USD, vis-à-vis 3Q16’s RM4.19/USD, a drop of 7%.

Meanwhile, we are also cognisant of the weaker earnings guidance recently from the major smartphone components vendors (of which some are also the customers of MPI). Coupled with the limited earnings visibility, we are maintaining our CONSERVATIVE stance on the OSAT players given their position as subcon manufacturers in the back-end manufacturing processes which are more vulnerable to the sales weakness (thin margins, thus with lesser tolerance for margin of errors).

Note that we have already imputed a conservative forecast for its FY17E NP previously; with growth of -3%.

Change to Forecasts

Post model updates, our FY16E-FY17E NPs were toned up by 1%-2%.

Rating

Maintain MARKET PERFORM

Valuation

Recall that we have already rollover our valuation base year from FY16E to FY17E in our latest sector report, titled: Inflection point published on 6th Apr 2016. With a lower targeted PER of 10.5x ascribed, a valuation which is broadly in line with OSAT players (previously at 12.0x) in Malaysia, our new TP is now RM7.78 from RM8.63 previously). Upside Risks to Our Call

Higher than expected sales and margins.

Industry recovery

Further strengthening of USD vs MYR

Source: Kenanga Research - 28 Apr 2016