Malaysian  Pacific  Industries’  (MPI)  share  price  has  retraced  by  >25% since August  in tandem with  the  weakness in  the  local  equity market. We  think  this as an opportunity to buy on weakness as we continue to see positives in  the  improving industry outlook.  Upgrade  to BUY, with our TP revised to MYR6.34 from MYR6.40 (15.8x 2015 P/E, 40.9% upside) as we updated our model following the release of its annual report.

Retracement  in  share  price.  Sentiment  on  technology  stocks  took  a sharp turn when US-based Microchip Technology  (MCHP US, NR)  CEO Steve  Sanghi  cautioned  investors  on  its  near-term  sales  outlook  on  9 Oct.  Since  then,  MPI’s  share  price  has  retraced  by  >25%  as  investorsentiment  was  aggravated  by  renewed  concerns  over  a  weaker-thanexpected global economic recovery.  Nonetheless, we  opine Microchip’s lacklustre  sales  should  be  treated  on  a  standalone  basis  as  global semiconductor sales continue to show strength as we move into 2015. 

Positive  industry  outlook.  The  Semiconductor  Industry  Association (SIA) announced that worldwide sales of semiconductors  hit  an  all-time high of USD28.4bn in August,  with YTD growth registering at 10.4%.  On the other hand, the book-to-bill ratio for semiconductor equipment moved slightly above  parity  at  1.04x as of  June. We are expecting the positive momentum  to  sustain  for  the  rest  of  the  year,  driven  by  an  increased appetite  for  technology  devices  on  the  introduction  of  new  flagship models with improved technical specifications.

1QFY15  (Jun)  numbers likely to be in line.  On its upcoming 1QFY15 results  release,  we  expect  MPI’s  quarterly  core  earnings  to  register within  MYR17m-22m.  This  would  likely  be  driven  by  its  smartphone segment as  management guided that contribution from the sub-segment would likely breach 40% of total sales in FY15 (from 34% for FY14).

Upgrade to BUY. Following the recent retracement in MPI’s share price, we  upgrade  our  call  to  BUY  (from  Neutral)  as  we  see  this  as  an opportunity to accumulate on weakness. We revise  our TP  marginally to MYR6.34 from MYR6.40 (15.8x 2015 P/E, 40.9% upside) as we updated our model for housekeeping purposes following the release of its annual report.

Source: RHB