MPI’s 1QFY21 post-results briefing was well attended with more than 100 participants. Management remains upbeat for upcoming quarters on strong orders for RFFE modules owing to 5G adoption in smartphones, robust demand for power management chip packages for data centres, and rising adoption of SiC modules for EVs. Expansion in its Suzhou plant has been completed and it is expected to take on more jobs from local Chinese vendors. Maintain OUTPERFORM with an unchanged TP of RM29.00.

Strong order visibility ahead. MPI’s post-results’ briefing was well attended with more than 100 participants. The management was upbeat about the group’s prospects and indicated that orders from key customers remain strong for the subsequent quarters, thanks to higher demand for power management chip packaging as data centres are seeing the need to expand due to continuous surge in web computing (e.g. conference calls, e-learning, media streaming), driven by prolonged work-from-home practice. Besides that, MPI expects robust demand for RFFE modules on the back of 5G adoption in smartphones, more so with China’s move to source components internally, benefiting its Suzhou plant.

Expansion in China completed. Amidst the pandemic, the group has successfully completed the second floor expansion in its Suzhou plant, alleviating the capacity constraint as it was previously running at 104% utilisation rate. With an almost doubled floor space of 50k sq ft after the expansion, the group anticipates more jobs from the likes of Huawei, which is heavily loading up on local suppliers with orders to reduce its reliance on US vendors.

Automotive remains the focus. Automotive contribution to the group was unchanged at 31% of revenue despite the Covid-19 breakout. This was possible thanks to the swift rebound in China car sales as well as in Europe, with emphasis on the rapid adoption of electric vehicles. The group continues to build upon its venture into silicon carbide (SiC) power packages as the new technology is gaining traction among EV manufacturers. SiC power modules promise faster charging speed and longer driving range for the same amount of battery capacity compared to normal silicon. The end-customers include the likes of Tesla and VW Group who are pushing towards electrification to reduce CO2 emission.

Maintain FY20E and FY21E earnings at RM190.3m and RM213.0m,  respectively.

Maintain OUTPERFORM with an unchanged Target Price of  RM29.00 based on higher 27.3x CY21E PER, +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.

Source: Kenanga Research - 27 Nov 2020