9M17 CNP was above expectations due to the higher-than- expected revenue (likely driven by the Smartphone segment) coupled with better-than-expected EBIT margins on better product mix. A second interim single-tier DPS of 19.0 sen was a pleasant surprise. The group?s strategic product exposures as well as its technical expertise edge augur well for the current upcycle. No changes to our FY17E-FY18E earnings for now. Maintain OP with an unchanged TP of RM12.75.

9MFY17 results above. The group reported 3Q17 CNP of RM43.2m (- 21% QoQ, +37% YoY), bringing its 9M17 CNP to RM137.9m (+24%) which made up 87%/82% of our/consensus full-year estimates. The positive deviations were mainly due to the higher-than-expected revenue (likely driven by the Smartphone segment) coupled with better-than- expected EBIT margins on better product mix. Stronger USD/MYR of average RM4.44/USD vis-�-vis our FY17E MYR/USD of RM4.40/USD also helped, to some extent. To our positive surprise, a second interim single- tier DPS of 19.0 sen was declared, bringing YTD DPS to 27.0 sen which topped our FY17E DPS of 23.0 sen.

YoY, 9M17 revenue grew by 3%, (a reversal from the 1H17 growth of -1%) driven by much better 3Q17 sales (+13%). In 3Q17, customers from all geographical segments (namely Asia, US and Europe) registered meaningful growth with US spearheaded by a 28% jump in sales. We believe this could be attributed to the higher sales in Smartphone amid the recent flagship smartphone launching. At the operating level, with better gross profit registered (at +13%, which we believe to be due to better operational efficiency and better product mixes) coupled with much higher ?other operating income? of RM11.1m recorded in 9M17 (vs ?RM16.6m in 9M16, which we believe to be driven mainly by forex gains), EBIT soared by 33%. QoQ, numbers were seasonally weaker; with core PATAMI dropping by 21% on lower revenue alongside operational deleveraging.

Poised well to ride on the uptrend. The overall industry continued to show improvement with global semiconductor sales in February 2017 increasing by 16.5%, marking the seventh consecutive YoY growth which is also the largest YoY growth since November 2010. Meanwhile, our channel checks also revealed that the equipment manufacturers are seeing higher demand from their end customers. Taking these as the positive signs, we believe that the spill-over effect will also be reflected in the Malaysian back-end Semiconductor players. In terms of end products, we are expecting overall Smartphone segment to see better growth again in conjunction with the launching of flagship models by world?s largest vendors this year. This should benefit MPI given its meaningful exposure to the segment (41%). For the Automotive segment, we 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 more meaningful earnings coming to fruition in the following quarters.

Maintain OUTPERFORM with an unchanged TP of RM12.75. While we leave our FY17E-FY18E earnings estimates unchanged for now pending further details from the briefing today, our new earnings assumptions could have upside bias. Our unchanged TP of RM12.75 is still based on 15.0x FY18E PER (being its upcycle valuation). Risks to our call include: (i) lower-than-expected sales and margins, and (ii) unfavourable currency exchange.

Source: Kenanga Research - 19 Apr 2017