Malaysian  Pacific  Industries’  share  price  surged  >25%  over  the  last month,  from  an  improving  industry  outlook  as  major  industry associations/experts turn  more bullish on the sector  in the near term. We  opine  this  will  continue  fuelling  positive  sentiment,  and  maintain BUY. Our FV rises to MYR6.23 (from MYR4.77), pegged to a revised 1.7x CY14F P/NTA in anticipation of a better quarterly performance ahead.

• Positive  news  flow.  The  Semiconductor  Industry  Associationannounced  that  global  sales of  semiconductors  hit  USD26.3bn  in  April (+11.5% y-o-y).  World Semiconductor Trade Statistics,  meanwhile,  has upgraded its 2014  global semiconductor sales  growth  forecast  to 6.5% (from 4.1%)  as the association expects growth to be driven by  analogue integrated  circuits,  optoelectronics  and  sensors.  On  top  of  that, Semiconductor  Equipment  and  Materials  International  reported  that 1Q14 worldwide semiconductor manufacturing equipment bookings went up  to  USD9.9bn  (+27.0%  y-o-y).  Meanwhile,  the  book-to-bill  ratio  for North America-based equipment producers climbed to 1.06, the highest YTD.  We  believe  these  imply:  i)  better  earnings  visibility  for semiconductor players come 2HCY14, and ii) more upbeat sentiment, as evidenced by the increase in the capex of indusry players.
• Outlook  improves.  Malaysian  Pacific  Industries’  capex  is  expected  to peak  in  4QFY14-1QFY15  at  MYR40m-45m  per  quarter,  vis-à-vis MYR35m for 9MFY14, on deliveries of new equipment. This is consistentwith  industry  trends  and  we  believe  it  should  translate  into  higher capacity  come  FY15  as  management  looks  to  expand  the  company’s presence  in the  smartphone  and auto segments, which  currently make up  34%  and  23%  of  sales  respectively.  In  its  last  analyst  briefing, management guided that contributions from its smartphone segment are expected to breach the 40% level come FY15.
• Investment  case.  We  maintain  our  BUY  call  on  the  stock.  While  we make no major changes to our earnings forecasts, we upgrade our FV to MYR6.23  (from  MYR4.77),  pegged  to  a  revised  CY14F  P/NTA  of  1.7x(from 1.3x)  on improved earnings visibility.  This implies  a  10% discount to its 5-year average P/NTA of 1.9x, but at a 20% premium to the 5-year sector average of 1.4x. We  believe this is  justified,  given the company’s relatively cleaner balance sheet and improved profitability. 

Source: RHB