MPI’s 2QFY22 CNP of RM85.3m (+27% YoY; +5% QoQ) marks a new record as well as its seventh consecutive QoQ earnings climb which came in within expectations, making up 55%/51% of our/consensus full-year estimates. 1HFY22 revenue climbed 30% on the back of encouraging orders from the automotive and industrial segments. We also observed rising adoption of next-gen semiconductors (GaN and SiC) where MPI has a first mover advantage. With a robust order pipeline and competent management, we expect the growth trend to continue in 2022. Maintain OUTPERFORM and reduce TP to RM48.10 to factor in the negative sentiment arising from the US Fed tapering.

Within expectation. 2QFY22 CNP of RM85.3m (+27% YoY; +5% QoQ) marks a new record as well as its seventh consecutive QoQ earnings growth which came in within expectations, making up 55%/51% of our/consensus full-year estimates.

Results’ highlight. QoQ, MPI managed to extend its record-breaking streak to mark its seventh consecutive QoQ climb as 2QFY22 CNP inched 5% higher to RM85.3m. Revenue climbed 4% higher to a new quarterly record of RM608.0m on the back of encouraging orders from the automotive and industrial segments. YoY, 2QFY22 CNP increased 27% while revenue climbed 26% on robust demand across all regions; Asia (+26%), USA (+33%) and Europe (+20%). Cumulatively, 1HFY22 revenue increased 29% to RM1.2b while CNP grew at a larger quantum of 37% to RM167.0m thanks to management’s commendable efforts in workflow optimisation, well-planned labour allocation and adoption of robotics and automation in the plant where certain processes can run 24/7 lights-off without human assistance.

Order pipeline remains healthy. While challenges such as manpower constraint, long delivery lead times for equipment, rising material cost are here to stay, the group remains optimistic of extending the growth trend into FY22 as demand for semiconductor chips remains elevated around the world. To maintain its edge among the competition, the group will continue to utilise more automation in its plant as well as focusing on advanced packages which yield good margins. In addition, having a head start in packages related to next generation materials such as silicon carbide (SiC) and gallium nitride (GaN) puts MPI in a favourable spot as adoption continues to grow. Coincidentally, an existing customer of MPI announced a €2b (RM9.5b) expansion in Kulim to focus on wideband gap (SiC and GaN) semiconductors to cater for industrial, automotive and EV charging applications.

Maintain FY22E CNP and FY23E CNP of RM302.4m and RM332.8m, representing growth of 11% and 10%, respectively.

Maintain OUTPERFORM with a lower Target Price of RM48.10 (previously RM56.20) based on 30x (previously 35x) CY22E (+1SD to 5- year mean), factoring in negative sentiment towards the US Fed tapering.

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 - 28 Feb 2022