• Maintain NEUTRAL, with MYR28.80 TP, 6% upside, c.2% FY24F (Jun) yield. Malaysian Pacific Industries’ 1QFY24 core profit of MYR25.3m (-49.1% YoY) met our expectation but missed consensus’ estimate. Overall stronger QoQ performance was lifted by favourable FX and better loadings while slower demand and loss of operating leverage dragged YoY performance. We keep our ratings as the expectation of a gradual, uneven recovery to a better FY24 is in the price.

• Within ours but below consensus’ forecasts. 1QFY24’s reported revenue of MYR513.2m (-9% YoY) and core PATAMI of MYR25.3m came in at 21.1% and 14.8% of ours and consensus’ full-year forecasts. Slower demand from Asia (-22%) and Europe (-8%) segments undermined the overall profitability, further compounded by higher input costs. EBITDA margin recovered to flattish YoY, after adjusted for FX and derivative losses, thanks to favourable FX movements. A first interim dividend of 10 sen per share (flat YoY) was declared, going ex on 30 Nov 2023.

• 1QFY24 marks the second consecutive sequential improvement. Stronger volume loadings on seasonality, coupled with favourable FX led to a 6.4% rise in QoQ revenue growth. This translates to a remarkable 3.8x improvement in the bottomline – boosted by better operating leverage and a low base in 4QFY23.

• Cautious outlook remains. Notwithstanding the sequential improvement, the semiconductor sector remains in a slow pace recovery, no thanks to the lukewarm demand in the consumer electronics market and uncertainties on the global macro environment. Management also cited that recovery of the semiconductor industry in the near-term is further clouded by recent geopolitical tensions. We expect similar numbers going into 2QFY24 on seasonal factors and mild recovery from China, while certain weaknesses are seen in server and automotive customers in Carsem Ipoh. On expansion in China, the new Suxiang plant will be delayed by at least a year to 2025 as management strives to fill up its currently underutilised capacity in Suzhou.

• We keep our forecasts and ratings as the results are in line. Our MYR28.80 TP (inclusive of 2% ESG premium) is based on unchanged 27x CY24F P/E, at +1.5SD from its 5-year mean. Despite the improved results sequentially, in our view, current valuation has priced in the expectations of a gradual volume recovery amidst the semiconductor industry’s prolonged downcycle. Nonetheless, investors with medium-term horizons can look at MPI’s exposure to the power module in silicon carbide packaging and gallium nitride for the automotive electrification space.

• Downside/upside risks: Slower/stronger-than-expected orders, and unfavourable/ favourable FX.

Source: RHB Securities Research - 16 Nov 2023