Post analyst briefing, we continue to like MPI’s efforts in turning around and expanding its business. However, the visibility of the sector outlook remains low due to the unfavorable external environment. Maintain NEUTRAL with an unchanged FV of MYR2.66, based on 0.8x CY14 P/NTA (at a 40% discount to historical 5-year sector average of 1.4x).

¨      Improving profit margins. The three high-yielding businesses of high density leaded packaging, micro leadframe packaging (MLP) and test services now represent 82% of total sales, while the 3QFY13 group utilization rate stood at 74%. To further boost profitability, Management will focus on improving the manufacturing process to reduce variable costs.

¨      Minimum wage policy has little impact. Management revealed that the incremental rise in staff costs of around MYR160k/month as a result of the implementation of minimum wage is immaterial, given that most of its employees already earn above the salary threshold.

¨      Upbeat 4QFY13 outlook. Turning optimistic for 4QFY13, Management guides for a q-o-q double-digit sales growth. This is in line with the seasonal trend in which global chip sales start to gain pace m-o-m in the typically strong 2H. 

¨      S&T still growing robustly. Management anticipates robust growth from the smartphone and tablet (S&T) segment in 4QFY13 on the back of widening customer base and strong demand. To further cement its position in the S&T segment, the company has developed an ultra-thin quad-flat no-leads (QFN) package as an alternative to wafer level chip scale package (WLCSP).

¨      Automotive segment still relevant. MPI will continue to support the automotive segment via its legacy leaded packages although the industry growth is generally tepid. That said, however, demand for the high-density leaded packaging – which has good margin – has been on the rise, thus making it a substitute product.

Upbeat outlook for 4QFY13

Smartphone and tablets still growing robustly

Turning optimistic for 4QFY13, Management guides for a q-o-q double-digit sales growth. This is in line with the seasonal trend in which global chip sales start to gain pace in the typically strong 2H. Furthermore, Management expects robust growth from the smartphone and tablet (S&T) segment in 4QFY13 on the back of widening customer base and strong demand.

Management shared that three new customers were added into its S&T portfolio, primarily dealing with radio frequency (RF) applications. We understand that the company had shipped 500m units of RF apps YTD. This segment continues to weigh heavily in MPI’s sales, representing 33% of 9MFY13 total revenue vs 22% a year ago. Other products such as bluetooth modules, micro-electromechanical system (MEMS) and gyroscopes also contributed to the S&T segment growth as well.    

To further strengthen its S&T segment, MPI has developed an ultra-thin quad-flat no-leads (QFN) package as an alternative to wafer level chip scale package (WLCSP). We gathered that the new product is multi-die capable and extremely thin. Management intends to market the ultra-thin QFN based on these merits to capture demand for smart devices – for which sizes are progressively getting thinner

Automotive segment still relevant

MPI will continue to support the automotive segment via its legacy leaded packages although the industry growth is generally tepid. That said, however, demand for the high-density leaded packaging – which has good margin – has been on the rise, thus making it a substitute product. Management reiterated that this segment remains an important business, as the industry is relatively stable and secure, providing a sound basis for organic growth moving forward. YTD, automotive sales contributed 21% to total revenue, unchanged from a year ago.

Source: RHB