Review

• MPI’s FY19 net profit of RM128.3mn (-9.9%) came within ours and consensus estimates at 102.4% and 95.8% respectively. As per previous corresponding periods, no dividends were declared for the quarter (YTD: 27.0sen/share, -6.9%).

• YoY. FY19’s revenue and net profit declined 3.5% YoY and 9.9% YoY to RM1,487.9mn and RM128.3mn generally due to the trade war as well as stricter emission standards in Europe which automakers are required to comply with. Based on the average forex of RM4.13/USD (+1.2%), we estimate USD revenue declined 4.8%.

• QoQ. 4QFY19’s revenue grew 4.8% QoQ and 79.3% QoQ to RM345.9mn and RM30.1mn. Based on the average forex of RM4.15/USD (+1.4% QoQ), we estimate USD revenue grew 4.3% QoQ which was in line with managements guidance for a recovery on a sequential basis. Coupled with effective cost control, profitability improved with EBITDA margin and PAT margin at 23.9% (+2.7pp QoQ) and 8.7% (+3.6pp QoQ).

• Meanwhile, the group remained in healthy financial standing with a robust net cash position of RM713.4mn or RM3.40/share (+3.6% QoQ, +24.6% YoY).

Impact

• Upon imputing FY19’s year-end figures into our model and lowering our FY20-21 sales growth assumption from 3.7%/8.8% to 1.6%/4.4% in view of the prolonged and heightened trade war, we cut our FY20/FY21 earnings estimates by 4.7%/12.0% to RM134.2.0mn/RM153.8mn. We also revise our FY20 dividend forecast to 27.0sen/share (previously 29.0sen/share) and introduce our FY22 earnings forecast of RM173.2mn.

Outlook

• While we are sanguine on the group’s automotive and industrial centric strategy, we expect its near-term performance to remain challenged by the prolonged and heightened trade war. On a positive note, the group’s robust balance sheet with a net cash position of RM713.4mn should provide some comfort on its ability to weather any unprecedented downturns as well as pursue M&A opportunities.

Valuation

• Following the downward earnings revisions, our TP for MPI is lowered to RM8.23/share (previously RM9.00/share) based on an PE multiple of 12.0x which is in line with the stock’s 5-year mean. Reiterate Sell. Key downside risks include: 1) escalation in the trade war, 2) a strengthening of the ringgit against the USD and 3) surge in commodity prices (i.e., copper and gold).

Source: TA Research - 29 Aug 2019