MPI’s 1QFY24 results met expectations with a second consecutive quarterly core net profit which more than doubled QoQ on a 6% expansion in top line thanks to a recovery in orders, particularly from the US. We maintain our forecasts but raise our TP by 13% to RM27.20 (from RM24.05) to reflect an upward trend in its peer’s valuations. Maintain MARKET PERFORM.

Within expectations. MPI’s 1QFY24 core net profit of RM16.5m (-68.7% YoY) made up only 10% of both our full-year forecast and the full-year consensus estimate. However, we deem the results within expectations as we anticipate better earnings during the remaining quarters on a recovery in orders.

Results’ highlights. YoY, MPI's 1QFY23 revenue declined 9% due to lower orders from the Asian (-21.8%) and European (-7.6%) regions, partially cushioned by a substantial increase in orders from the US (+34.4%), which now made up 23% of the group’s revenue (vs. 15.8% in 3QFY22). This points to a tepid recovery in demand in Asia, particularly China, on soft demand for consumer electronics owing to cautious spending by consumers.

On a brighter note, on a QoQ basis, its 1QFY24 revenue climbed 6.4% while its core net profit more than doubled (albeit from a low base), indicating the recovery momentum has extended from 4QFY23.

Turning the corner. We are optimistic about the group's sustained recovery momentum, underpinned by its ability to rein in costs (e.g. labour reduction at the Suzhou plant, China) and optimise supply-chain efficiency. That said, it is still a pale shadow to its former self during the peak of the recent up-cycle and not spared the slowdown in the global semiconductor demand. We are mindful that there are high expectations on MPI given its stature as one of the most resilient tech-related companies in trying times.

Forecasts. Maintained

We raise our TP by 13% to RM27.20 (previously RM24.05) on a higher CY24F PER of 26x (previously 23x), to reflect an upward trend in its peer’s valuations. Our TP reflects a 5% premium based on a 4-star ESG rating as appraised by us (see Page 4).

Investment thesis. We like MPI for: (i) its strong exposure in the growing automotive semiconductor segment, (ii) its venture into promising new technology such as gallium nitride and silicon carbide, and (iii) its superior expertise in power management chip packaging for data centres. However, its prospects over the medium term will be rather muted in the absence of a significant recovery in chip demand from the consumer electronics sector as well as data centres. Maintain MARKET PERFORM.

Risks to our call are: (i) a weaker-than-expected recovery in the global chip sector, (ii) a further escalation in the Sino-US chip war, and (iii) the USD weakens.

Source: Kenanga Research - 16 Nov 2023