After  attending  the  analyst  briefing  yesterday,  we  are  lifting  our  FY14 core  earnings  forecast  by  23%  and  also  introduce  our  FY15  numbers. Hence,  we  raise  MPI’s FV to MYR2.76 from MYR2.66,  based  on  0.8x CY14  P/NTA.  We also  upgrade  our  stock  recommendation  to TRADING BUY  from  NEUTRAL.  We  deem  its  current  trough  valuation  unjustified, and its FY14-FY15 dividend yield of 6-8% attractive. 
 
- Key operating highlights. MPI’s three high-yielding businesses of high density  leaded  packaging,  micro  leadframe  packaging  (MLP)  and  test services  now  contribute  83%  of  total  sales,  while  its  4QFY13  utilization rate stood at 82% (vs 74% in 3QFY13). Based on sales by end-product, the  smartphone  and  tablet  (S&T)  segment  -  now  accounting  for 33% of total revenue - grew 41% y-o-y to MYR405m in FY13.

- Management guidance. MPI is guiding for flat 1QFY14 sales growth q-o-q  and  a  slight  drop  in  overall  profit  margin  from  4QFY13  given  the slowdown in the S&T segment. However, the growth momentum should resume  as  Management  expects  the  sales  volume  of  its  newly developed,  ultra-thin quad-flat  no-leads  (QFN) package  to pick up  pace from  September  onwards.  The  group  also  feels  it  is  well-positioned  to outgrow the market in FY14 given its favorable product mix.

- Forecasts and risks. We raise our FY14 core earnings forecast by 23% after lowering our opex assumption by 1% as we had been conservative previously.  We  also  introduce  our  FY15  numbers.  The  key  risks  to  our forecasts are: i) strengthening of the MYR, ii) higher raw material costs, and iii) a slowdown in the S&T market.

- Investment  case.  Following  the  upward  revision  to  our  financial forecasts, we raise MPI’s FV to MYR2.76 from MYR2.66, based on 0.8x CY14  P/NTA  (at  a  40% discount  to  the  historical  5-year sector  average of  1.4x).  We  also  upgrade  our  recommendation  on  the  stock  to TRADING  BUY  from  NEUTRAL. We  find  its  current dividend  yield  of 6-8%  attractive  and  like the  company’s efforts  in  turning  around  and expanding  its  business.  Furthermore,  the  stock  is  currently  trading  at trough valuation, which we deem unjustifiable (please see Figure 3).

Source: RHB