MPI still offers the best value proposition amongst all due to its cheap valuation backed by its improving earnings profile. We tweaked our FY19E/FY20E net earnings by +5%/+5% after assuming a stronger USD assumption of RM4.15/USD (from RM4.05/USD). BUY with a TP of RM13.00 based on a targeted 13.0x FY19E PER which is the group's mid-cycle valuation. MPI is trading at a 2-year forward PER of 11.4x, at a huge discount of 35%/29% compared to its closest peers-UNISEM/Malaysian outsourced semiconductor, assembly and test (OSAT) players 

Post portfolio rationalisation, most of the weak-margin products have been replaced with sensor-related packages hence the improving margins. Management noted that Automotive will continue to drive sales and earnings, along with growing demand for Servers (cloud computing related chips). 

In terms of 1Q19 sales in USD terms, it was up +2% QoQ and +11 % YoY, which bucked the industry's weaker trend QoQ. Management attributed this to the higher ramp-up from its Automotive sensor-related packages with additional boost from the fruition of the rationalisation exercise. Segmental-wise, improvement continued to be seen across all segments, with Automotive electronics (+19%) and Industrial segments (+16%). 

Meanwhile RM78m of capex were ploughed to cater for more automated processes in its Ipoh plant. Note that the capex spent this round is the highest over the past four quarters; with the amount equalling two quarters' capex. As of 1Q19, the group's net cash position has already reached RM644m (or net cash of RM3.39/share), highest among the regional and local OSAT peers. While the group has no plans to give out extra for dividends, we reckon MPI to maintain around 30% dividend pay-out ratio. 

Source: Rakuten Research - 12 Nov 2018