Post MPI’s 4QFY24 investors briefing, we maintain our Buy recommendation, albeit with a lower target price of RM38.20, following the earnings cut to reflect caution regarding the near-term outlook. Despite MPI seeing some slowdown in the automotive segment, the group will continue to adopt an automotive-centric strategy, as management firmly believes that the long-term outlook for the automotive market remains bright. On the other hand, the group will continue to focus on investments related to electric vehicles, silicon carbide and gallium nitride technologies, advanced packaging, 5G testing, and MEMS sensors, among others.

The following are the key takeaways from the 4QFY24 analyst briefing:

Seeing a Slowdown in the Automotive Segment

Management revealed that the group has started to experience some slowdown, particularly in the automotive segment. This was evidenced by the sales breakdown in 4QFY24, which was led by industrial at 43%. This was followed by automotive at 36%, consumer/communications at 13%, and PC/notebook at 7%. This is the first time automotive has dropped below the 40% mark since 4QFY22.

According to management, the global automotive market is temporarily cooling off after experiencing a strong rebound over the past 2 years. The weaker demand in the global automotive market was partly attributed to a lack of demand for electric vehicles in Europe due to higher costs and insufficient charging infrastructure, as well as lower car sales in the US due to economic distress and high interest rates.

FY25: Remain Cautiously Optimistic

While guiding that the near-term outlook remains cloudy due to the sluggish automotive market and unfavourable foreign exchange rates, management shared that the semiconductor industry in China is gaining momentum. The upward trend in sales across China is benefiting its plant in Suzhou. Meanwhile, despite seeing increasing competition, the group will not participate in the price war and will instead focus on protecting its bottom line and margins. Besides, management also guided that MPI currently has a healthy order book and remains cautiously optimistic that earnings will gradually increase for FY25, alongside an anticipated recovery in global semiconductor demand. Moving forward, the group will continue to adopt an automotive-centric strategy, as management firmly believes that the long-term outlook for the automotive market remains bright.

Committed to Investing in the Latest Technologies

Management has reaffirmed its commitment to continue investing in new technologies to capture the next wave of opportunities. With a solid net cash of RM1.0bn, the group will focus on investments in electric vehicles, silicon carbide and gallium nitride technologies, advanced packaging, 5G testing, and MEMS sensors, among others. Meanwhile, the group is also actively seeking merger and acquisition opportunities.

Impact

Earnings forecasts for FY25/FY26/FY27 were cut by 14.5%/12.9%/13.5%, respectively, after factoring in lower sales assumptions.

Valuation & Recommendation

After revising the earnings forecasts, we tweaked the target price from RM42.30 to RM38.20 based on a PE multiple of 32.0x CY25F EPS. Maintain a Buy call on the stock. Key downside risks include weaker-than-expected loadings, geopolitical tensions weighing on economic growth and disrupting supply chains, a strengthening of the Ringgit against the USD, and a surge in commodity prices.

Source: TA Research - 29 Aug 2024