Kenanga Research & Investment

M’sian Pacific Industries - All-Time High Revenue & Profit

kiasutrader
Publish date: Thu, 26 Nov 2020, 11:18 AM

Upgrade TP to RM29.00 (+23% upside). MPI registered its alltime high earnings with 1QFY21 CNP of RM55.3m (+50% YoY; +13% QoQ). Despite forex losses of RM6.7m, earnings still came above expectations at 31% each of our/street estimates. Revenue jumped 19%, spurred by higher demand for RFFE modules, power management chips, as well as automotive sensors. We expect demand to remain elevated owing to 5G adoption, WFH practice, and strong automotive recovery. Raise FY21E/22E earnings by 7%/8% to account for higher orders across all products. Maintain OUTPERFORM with a higher TP of RM29.00.

Above expectation. MPI registered an all-time high quarterly earnings as 1QFY21 CNP came in above expectations at RM55.3m (+50.3% YoY; +12.8% QoQ), representing 31% each of our and consensus fullyear estimates. The group’s net cash position further strengthened to RM943m (RM4.70/share) from RM826m in the previous quarter. The group declared a 10.0 sen dividend, in line with our expectation.

YoY, 1QFY21 CNP jumped 50.3% to RM55.3m while revenue increased 19.4% to RM440.6m, marking a new high in quarterly profit and revenue despite realising forex losses of RM6.7m. Revenue from Asia (+25%), USA (+21%) and Europe (+4%) rose across the board thanks to higher utilisation for both its Ipoh and Suzhou plants which benefitted from the group’s healthy product mix. Operationally, EBIT margin increased 3.4ppt to16.7% while net profit margin climbed 2.6ppt higher to 12.6%. QoQ, CNP increased 12.8% as revenue climbed 8.7%.

Demand remains robust. We expect the group’s earnings to continue on its upwards trajectory on the back of rising demand for its power management chip packaging service in data centres and laptops due to higher usage of web computing (such as video conferencing, elearning, and media streaming). Orders for radio-frequency front-end (RFFE) packaging modules are expected to remain elevated thanks to 5G adoption in smartphones along with China’s move to source components locally, benefiting its Suzhou plant. Furthermore, the group’s venture into silicon carbide (SiC) power modules offers promising prospects given its increasing popularity among EV manufacturers.

We raise our FY21E and FY22E CNP by 7% and 8% to RM190.3m and RM213.0m, representing growth of 24% and 12%, respectively.

Maintain OUTPERFORM with a higher Target Price of RM29.00 (previously RM18.80) based on higher 27.3x CY21E PER (previously 19x), at +1SD to OSAT peers’ average. 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 - 26 Nov 2020

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