We believe MPI’s earnings growth momentum could turn lacklustre going forward, as we now forecast the USD/MYR rate to average 3.80 next year (vs MYR4.00 this year). Since its current valuation multiple is on par with that of its regional peers – and with the export theme likely to fade on the MYR’s strengthening – we downgrade our call to NEUTRAL. Our TP is revised to MYR7.53 (from MYR11.64, 10% upside).

MYR to rebound. We expect Malaysian Pacific Industries’ (MPI) growth momentum to slow down going forward, after taking into account our latest average USD/MYR forecast of 3.80 (from 4.10) for next year. We estimate that every 1% appreciation in the MYR vs the USD may potentially erode earnings by 4-5%, assuming all else is constant. Additionally, we caution the outlook of the global semiconductor industry looks increasingly challenging, as regional competition intensifies while overall demand may decelerate amidst global economic uncertainty.

Potential for more dividends. On a positive note, MPI’s net cash pile remained sturdy, with its cash/debt closing at MYR249.9m/MYR68.5mrespectively as at March. In addition, the group has accumulated treasury and trust shares of 20m shares. These could imply the potential for more generous dividends going forward in the form of cash or shares distribution. We forecast an appealing yield of 4.1-4.7% pa, pegged on a payout ratio of 37-47%.

Forecasts and risks. We trim our FY16F-18F EPS by 9-26% to take into account our latest 2016/2017 USD/MYR estimate of 4.00/3.80 (from 4.30/4.10)respectively, which – in our view – would be partly offset by slower ASP erosions. Key risks include a further strengthening of the MYR against the USDand potential global economic slowdown. This, in our view, would affect consumer spending on technology products.

Downgrade to NEUTRAL. With the forex theme likely to dissipate inanticipation of a further strengthening in the MYR as we move into 2017, wenow peg a revised 1-year forward P/E of 12x (from 15x). This is to be in linewith regional peers’ multiples. Our TP now stands at MYR7.53 (fromMYR11.64). Given the limited upside, we downgrade our call to NEUTRAL.