We came away from MPI’s Analysts’ Day feeling more reassured of its mid-term prospect after taking comfort from management’s strategies in sailing through the softening industry outlook. Management’s vision and forward strategies generally focused on: (i) product positioning as well as strategic exposure in different segments to buck the weak industry trend, (ii) growth potential of its Automotive segment, and (iii) sales and marketing strategies to drive revenue. While the group’s mid-term prospect appears promising, we believe the short-term positives have already been fairly priced-in. Maintain MP with an unchanged TP of RM7.78.

Key highlights. MPI held an Analysts’ Day last Friday, which saw a decent crowd of c.30 analysts and fund managers. Key highlights featured by Mr. Peter Yates, who is the group’s Managing Director and its management team include: (i) overview of semiconductor industry outlook as well as the group’s transformation from the past five years, (ii) sales and marketing strategies to drive revenue, (iii) opportunities from Automotive and Industrial segment as well as product positioning to anchor growth, followed by a plant tour on its M-Site.

Positioning well for the weak industry trend. While management noted that 2016 and 2017 could see general weakness in the semiconductor industry as guided by industry experts, the group is confident of bucking the trend with its product positioning in strategic exposure in different segments. Note that compared to the past five years, the group has transformed itself to mainly focus on higher value added (thus better margins) products/services (such as extremely thin MLP, WLCSP, turnkey test) and technology (such as PPak), and it has also been diversifying strategically among the cyclical (Internet of Things and Smartphone), defensive (Automotive) and modest growth (PC and Industrial) segments.

Automotive and Industrial segments to anchor growth. Management noted that Automotive and Industrial segments will be its key focuses in anchoring growth for the next two years. We laud the move, especially with regard to the Automotive segment, given the fact that on top of the higher margins that the segment carries, Automotive segment also provides relatively stable earnings base given its long life cycle, which will help to smoothen the group’s earnings volatility caused by cyclical (Smartphone) segments. From the meeting, we were upbeat to gather that the group’s leading Automotive technologies that are used for safety features (such as advanced package for pressures, magnetic, acceleration sensors) have already passed the stringent qualification stage and will see earnings fruition in two years. Additionally, it is also noteworthy that out of the top ten automotive semiconductor suppliers in the world, seven of them are already the customers of MPI. Meanwhile, touching base on the Industrial segment which involves the LED, solar, batteries and power supplies, management noted that this segment will be boosted by the overall demand of electrical products.

Sales and marketing strategies to drive revenue. The group has recently hired a few new experts for its sales and business development segment. While this is nothing surprising, we were enlightened by the foresight as well as strategies shared by the respective key personnel which stem from the perspective of customers, geography, markets and competition landscape. Of noteworthy, the group is already developing the roadmap to capture the emerging key trends, which are Automotive and Industrial, miniaturisation (or smaller factors), and Internet-of-Things; all on the back of its advanced technologies, strategic customers/accounts planning, geographical exposure as well as competitive advantages.

Our take post meeting. While the group’s mid-term prospect appears promising, we believe the short-term positives have already been fairly pricedin. We reiterate our MP recommendation with an unchanged TP of RM7.78. This is based on a conservative 10.5x FY17E PER, which is slightly below the group’s forward average PER.

Source: Kenanga Research - 25 Jul 2016