3QFY20 CNP came in within expectation at RM22.1m (+32% YoY; -51% QoQ), bringing 9MFY20 CNP to RM103.9m (+5.8% YoY). This represents 75% of our, and 73% of consensus, estimate. The group’s net cash position further strengthened to RM809m from RM797m in the previous quarter. Dividend of 17.0 sen declared for this quarter brings the YTD dividend to 27.0 sen. FY20E CNP of RM138.1m and OUTPERFORM call with TP of RM13.30 maintained.

Within expectation. 3QFY20 CNP came in within expectation at RM22.1m (+32% YoY; -51% QoQ), bringing 9MFY20 CNP to RM103.9m (+5.8% YoY). This represents 75% of our, and 73% of consensus, estimate. The group’s net cash position further strengthened to RM809m from RM797m in the previous quarter. The group has declared a dividend of 17.0 sen this quarter which brings the YTD dividend to 27.0 sen, in line with our expectation.

YoY, 3QFY20 CNP rose 32% on a 14% increase in revenue as the company continued to prioritise higher margin products and production optimisation through automation. Impressively, EBIT margin increased 0.9 ppts to 8.9% despite being marred by the movement control order (MCO) restrictions. QoQ, CNP fell 51% to RM22.1m while revenue declined 9.1%. The decline can be attributed to: (i) 3Q being seasonally weaker, and (ii) margin compression due to extra operating cost involved during the MCO with plant utilisation at only 50%. In terms of geographical breakdown, revenue across all regions declined during the quarter with Europe seeing the largest impact (-15.7%) due to the strict lockdown in the region. Contributions from Asia and US region both fell by 7% each.

Picking up on backlogs. With the plant back online and allowed to run at full capacity, the company will be busy fulfilling orders that have been piling up over the MCO period. With work-from-home being the new normal going forward, we believe demand from the industrial segment (power management chip packaging) will benefit as the importance of web computing (such as video conferencing, e-learning, and media streaming) has been amplified during the lockdown around the world. This is evident by the shortage of laptops and the surge in demand for enterprise HDD. Furthermore, the group’s venture into silicon carbide power modules offers promising prospects given the increasing popularity among EV manufacturers.

We keep our FY20E CNP unchanged at RM138.1m as we anticipate earnings to be on track to meet our forecast.

Maintain OUTPERFORM with an unchanged Target Price of RM13.30 based on CY20E PER of 16x, representing +1.5SD from its 5- year mean. We like MPI for its long-term mission to transform its portfolio into an automotive-centric one, a space which we believe offers bright growth prospects due to rising semiconductor content in automobiles.

Risks to our call are: (i) weaker-than-expected sales and margins, (ii) unfavourable currency exchange rates, and (iii) further disruption from the US-China trade war.

Source: Kenanga Research - 21 May 2020