• BUY, with higher MYR44.40 TP from MYR43.30, 34.5% upside, c.1% yield. FY22 (Jun) PATAMI of MYR318.1m met expectations, marking its ninth consecutive quarter of YoY growth, supported by robust growth in all product loadings and margin expansion amid strong demand for its services. Currently at below KL Technology Index (KLTEC) valuation, we like the counter for its visible competitive edge and growth avenues into FY23F and beyond, from the structural demand upsurge in both automotive and industrial segments, as well as contributions from its expansion plans.

• Another historic high year. FY22 record high revenue of MYR2.4bn (+21.5%) and core PATAMI of MYR318.1m (+23%) met expectations at 101.5% and 99.2% of our and Street’s full-year estimates. The stronger bottomline was supported by higher demand across all products segments and margin expansion, despite higher effective tax rate dues as certain mature packages were not exempted for tax. Both higher operating leverage and favourable FX contributed to EBIDTA margin improvement to 30% (FY21: 27.4%) level. Higher YoY revenues from Asia (+21%), the US (+27%), and Europe (+20%).

• Commendable quarter despite disruption in Suzhou. 4QFY22 revenue and PATAMI of MYR612.0m (+13.9% YoY, flat QoQ) and MYR78.5m (+17.3% YoY, +2.3% QoQ) sustained the growth momentum despite being a seasonally weak quarter and the fact that operation in Suzhou was disrupted in April/May due to the movement restrictions in China. The margin expansion on better economies of scale amid higher revenues and favourable FX more than offset the higher operating costs in relation to higher material prices, staff costs, and pandemic-related costs.

• Growth ahead. Despite inflation challenges, and manpower and material shortages, we expect growth to sustain into FY23 amid healthy demand, especially in automotive and power management ICs, including silicon carbide packaging. The new M-Site (+70k sqft floor space) is expected to start production by early 2023 along with the additional 35k sqft space at S-Site by 2H22 to cater for unwavering demand for MEMS sensors and automotive products prior to commencement of the new Suzhou plant by 1H24. However, Suzhou may see temporary slowdown amid the material shortages due to the moving restriction in China and slowdown in demand for legacy packaging.

• Forecasts. We tweak FY23F-24F by -1.9% and +4.6% after updating FY22 numbers and certain cost assumptions. TP is now at MYR44.40 as we roll forward to 25x (was 26x) FY23F P/E, in line with peers and KLTEC’s mean. Our TP includes a 2% ESG premium based on our proprietary methodology. We like MPI as it stands to benefit from its expansions plan, China’s localisation efforts, and advance packaging technology ie the power module in silicon carbide packaging and gallium nitride for the automotive electrification space. Downside risks: Slower-than-expected orders, material shortages, and unfavourable FX movements.

Source: RHB Research - 30 Aug 2022