MPI’s share price has risen by 15% since its 2QFY15 (Jun) results were released  in  end-January.  We  are  maintaining  our  BUY  call  with  our  TP upgraded  to  MYR7.69  from  MYR6.96  (15.8x  FY16F  P/E,  23%  upside)  as we roll forward our valuation to FY16. We continue to see strength in its near-term earnings, thanks to the current weakness of the MYR against the USD.

The MYR factor. The recent MYR weakness against the USD could help to  propel  Malaysian  Pacific  Industries’  (MPI)  earnings  growth  come  its 3QFY15 results release by end-April. The MYR has averaged MYR3.60 per  USD1.00  YTD  vis-à-vis  4QCY14’s  MYR3.37  (+6.8%  QoQ)  and 1QCY14’s  MYR3.30  (+9.1%  YoY).  We  estimate  that  every  1% depreciation in the MYR against the USD could translate into a potential earnings  upgrade  of  3-4%  for  MPI,  assuming  all  else  remains constant. Our in-house 2015 USD/MYR forecast currently stands at an average of MYR3.60.  

3QFY15  preview.  We anticipate MPI’s 3QFY15 revenue to  register  at MYR335m-350m  after  taking  into  account  the  current  favourable  forex environment,  partly  offset  by  the  shorter  working  period  for  its  Suzhou plant  in  China  due  to  the  festive  season. We  expect  orders  for  its  auto and  industrial  segments  to  pick  up  during  the  quarter  after  recording  a marginal  decline  in  orders  in  2QFY15,  as  some  of  its  customers  were running down their inventory levels. On a side note, we do not discount the  possibility  of  an  increase  in  dividends  (from  a  DPS  of  10  sen  in 3QFY14)  given  the  improving  earnings  outlook.  We  are  currently forecasting a DPS of 11 sen to be declared during 3QFY15 results.  

Forecasts  and  risks. We  upgrade  our FY15-17  EPS estimates  by  2.8-5.1%, after taking into account our revised USD/MYR assumption as well as tweaking our opex structure for housekeeping purposes. Key risks to our earnings estimates include: i) strengthening of the MYR against the USD,  ii)  higher  raw  material  costs,  and  iii)  a  potential  slowdown  in  the semiconductor market should consumer spending tighten.

Maintain  BUY.  We  continue  to  advocate  investors  to  accumulate  the stock on MPI’s improving earnings visibility for the rest of 2015 and given its undemanding valuation vis-a-vis its peers. Maintain BUY, with our TP upgraded to MYR7.69 as we roll forward our valuation to FY16 based on an unchanged 15.8x P/E.

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Malaysian  Pacific  Industries  manufactures,  assembles,  tests  and  markets  integrated  circuits,  semiconductor  devices,  electronic components and leadframes to customers worldwide

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Source: RHB