4QFY20 CNP came above expectations at RM49m (+63% YoY; +122% QoQ). FY20 CNP of RM153m (+19% YoY) exceeded our and consensus full-year estimates by 11% and 12%, respectively, led by record sales of RM1.56b. The group is on track to continue its growth trajectory with the industrial segment experiencing strong demand due to work-from-home practice. Meanwhile, the automotive market is showing encouraging signs of rebounding. Maintain earnings forecasts and OUTPERFORM call with a higher TP of RM18.80.

Above expectation. 4QFY20 CNP came in above expectations at RM49.0m (+63% YoY; +122% QoQ). Cumulatively, the group recorded FY20 CNP of RM153m (+19% YoY), exceeding our and consensus fullyear estimates by 11% and 12%, respectively. The group’s net cash position further strengthened to RM826m from RM823m in the previous quarter. No dividend declared this quarter which brings the YTD dividend to 27.0 sen, in line with our expectation.

YoY, FY20 CNP rose 19% on a 5.2% increase in revenue to an all-time high of RM1.56b. Throughout the movement control order (MCO) period, the group managed to record YoY growth, showcasing its ability to thrive amid the Covid-19 pandemic. This was possible thanks to its robust product portfolio and early precaution measures taken to ensure smooth operations while many of its peers struggled during the MCO period. Operationally, EBIT margin increased 0.9ppt to 13.6% while net profit margin inched 1.2ppt higher to 9.8%. QoQ, CNP leaped 122% to RM49.0m as revenue climbed 7.7%. The increase can be attributed to higher contributions from Asia (+10%) and the US region (+11%) while the Europe market remained flat.

Charting new territory. With the plant resumed to full capacity, the group is on track to continue its growth trajectory after exhibiting its ability to achieve record sales even during such challenging times. With workfrom-home expected to be the new normal for the foreseeable future, usage of web computing (such as video conferencing, e-learning, and media streaming) will continue to see significant rise. As such, data centres are seeing the need to expand owing to the surge in traffic and bandwidth demand. This is evident by the shortage of laptops and the rising demand for enterprise HDD. As a result, MPI’s industrial segment is poised to benefit tremendously as its power management chip packaging is favoured by big players in the data centre space. Furthermore, the group’s venture into silicon carbide power modules offers promising prospects given its increasing popularity among EV manufacturers.

We keep our FY21E CNP at RM178.2m and introduce FY22E CNP of RM197.9m, representing a conservative growth rate of 16% and 11%, respectively.

Maintain OUTPERFORM with a higher Target Price of RM18.80 based on higher 19x CY21E PER (previously 16x), in line with Bursa Malaysia Technology Index’s (KLTEC) 3-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 - 1 Sept 2020