We came away from MPI’s 3QFY20 Analysts’ Briefing learning that the company has shown great leadership amid the Covid- 19 pandemic in retaining customers and maintaining employees’ welfare. We expect QoQ as well as YoY growth in 4Q as it has been allowed to run at full capacity to clear order backlogs. FY20E CNP of RM138m and OP recommendation with TP of RM13.30 maintained.

4Q to see quarterly rebound. With the seasonally softer 3Q behind us during which utilisation was at 50% due to lockdown-related disruptions, we expect a better subsequent 4Q as the company has been allowed to run at full capacity to catch up on order backlogs. This clearing of backlog should ensure the delivery RM34m CNP in the 4Q20 by our estimates. This represents potentially 54% QoQ and 13% YoY growth. While there were order deferments due to the Covid-19 outbreak, management reiterated that its order pipeline remains healthy.

Great leadership shines in tough times. Having had the experience in dealing with the Covid19 response earlier in its China plant has helped the company to be better prepared for the crisis in Malaysia. Thanks to early precaution taken, MPI’s Suzhou and Ipoh plants managed to remain operational during the entire lockdown. This has enhanced customers’ appreciation towards the company as they were still able to deliver orders despite lockdown restrictions. While Phase 1 of the movement control order (MCO) had many companies scrambling for work permits and personal protection equipments (PPE), MPI was able to donate 100k face mask to medical staff and shelter homes while maintaining full operational adherence to the MCO protocol. With over 8,000 staff globally and being the largest employer in Perak, the group had zero casualties. To maintain job satisfaction among employees, the group did not impose any salary reduction. Instead, they paid out bonuses during March just like they maintained dividend pay-outs to investors.

Robust portfolio. Having a well-balanced clientele portfolio has kept MPI strong through good and bad times. While it may not enjoy exponential growth compared to companies with single client risk, MPI provides sustainability. This was evident in the latest quarter where the revenue decline in automotive and communication segment were cushioned by an uptick in the industrial and laptop segments due to the new practice of work-from-home. The group see more demand for power management chip packaging as web computing (video conferencing, e-learning, media streaming, and cloud storage) spiked in usage, in tandem with the shortage of laptops and the surge in demand for enterprise HDD.

Strong balance sheet. With cash pile of RM809m as at end-3QFY20 and annual free cash flows exceeding RM200m, MPI will have no issue weathering through these challenging times. The group can comfortably continue with the expansion of its Suzhou plant to cater for more demand from local customers, while maintaining if not raise its dividend pay-out.

Maintain FY20E CNP of RM138m.

Maintain OUTPERFORM with an unchanged Target Price of RM13.30 based on CY20E PER of 16x, representing +1.5SD from its 5- year mean. Our higher PER is justified by the group’s long-term objective to transform its portfolio into an automotive-centric one, a space which offers brighter growth prospects due to rising semiconductor content in automobiles.

Source: Kenanga Research - 22 May 2020