• Maintain BUY, new MYR37.70 TP from MYR35.90, 13% upside, c.1.4% FY24F (Jun) yield. 9MFY24 core profit of MYR119.8m (+62% YoY) exceeded expectations on higher-than-expected EBITDA margins stemming from favourable FX. An interim dividend of 25 sen/share was declared. We expect the utilisation rate at Carsem Malaysia’s Suzhou plant (Carsem Suzhou) to continue its uptrend amid a strong products pipeline and recovery of the semiconductor sector. We continue to like Malaysian Pacific Industries’ as one of the proxies for the semiconductor sector’s recovery.

• Above expectations. 9MFY24 revenue of MYR1.562bn (flat YoY) translated into a core PATAMI of MYR119.8m – at 87.3% and 89.7% of our and consensus’ full-year forecasts. EBITDA margins improved by 1.8% YoY to 25%, boosted by favourable FX movements and lower opex. Note: We exclude PPE impairments amounting to MYR9.47m in arriving at our core profit. Asia and Europe revenues fell 4% YoY, offset by much stronger US sales (+18% YoY).

• Flattish QoQ. 3QFY24 revenue of MYR526m (+11.5% YoY, +0.6% QoQ) was supported by stronger sales from US-based customers. Core PATAMI improved to MYR46.9m from a MYR10.1 loss in 3QFY23 but softened 1.6% QoQ. This was mainly supported by stronger interest and other operating income coupled with stronger margin. A stronger USD boosted EBITDA margin (+5.3% YoY), mainly on the stronger USD and better cost controls.

• Semiconductor sector recovery should boost utilisation. The semiconductor sector’s recovery continues on, boosting the utilisation rate at Carsem Suzhou, supported by stronger demand for servers and in the smartphone markets. Uneven recovery in the various end-applications will continue to undermine a full-blown sector recovery, in our view.

• Forecasts and rating. We raise our FY24F-FY26F earnings by 14.5-4.2% as we factored in higher EBITDA margin assumptions. This has resulted in a rise in TP to MYR37.70. This is inclusive of a 2% ESG premium and based on an unchanged 27x P/E (+1.5SD from its 5-year mean), but on par with the KLTEC. We like MPI, as we think it will be able to ride on the semiconductor sector’s recovery, as well as the proliferation of silicon carbide and gallium nitride advanced packaging.

• Downside risks: Slower-than-expected orders, loss of a major customer, technology obsolescence, and unfavourable FX.

Source: RHB Research - 17 May 2024