MPI (3867) : Malaysian Pacific Industries - Growing beyond smartphones
Target RM7.50 (Stock Rating: ADD)
Following MPI’s 1QFY15 briefing, we remain confident about its growth prospects that are driven by management initiatives to grow profitability via advanced packages and efficient cost-management. Management is guiding for sequential 0-5% decline in revenue due to a seasonal inventory correction and potential softening in industrial and consumer segment demand, but it expects stronger contribution from advanced packages and automotive earnings in 2HFY15. We keep our Add rating and target price of RM7.50, based on 14.3x CY16 P/E – on par with its 2-year historical mean. MPI is our top pick in the semiconductor sector due to its strength in operating efficiency and faster transition to higher-margin packages.
What Happened
Approximately 20-25 analysts and fund managers attended the analyst briefing hosted by MPI’s group managing director, Mr Peter Yates. There were no surprises from the briefing, though management did turn cautious on the 2QFY15 outlook due to a potential slowdown in industrial and consumer segment demand and seasonal inventory correction. Hence, management is guiding for 0-5% sequential sales decline in the coming quarter, which is similar to its competitors' guidance. In addition, management highlighted that the company allocated a combined RM5m provision in 1QFY15 to account for deferred tax expenses, employee stock options and bonus allocations.
What We Think
We believe that MPI's growth prospects are intact, led by resilient contribution from newer and advanced packages serving the smartphone and table (S&T) segment and rising sensor demand from the automotive segment. Moreover, we think that its expansion into the array segment and its decision to offer wafer-level service is a positive move to become a full-fledged assembly and packaging services provider for its customers. Apart from that, the overall industry outlook is expected to remain positive with 7-8% sales growth forecast for the 2014-15 period, coupled with moderate industry capacity expansion.
What You Should Do
Accumulate the stock. MPI's share price has declined by 22% since its YTD high in Aug. Hence, the share price pullback offers a good buying opportunity for investors to ride on MPI’s growth. The stock trades at 11.7x CY15 P/E and 1.3x CY15 P/BV, which are below its respective historical means of 14.3x and 1.9x. Stronger earnings contribution from the S&T and automotive segments, higher dividend payout and potential M&A activities are potential re-rating catalysts.
Source: CIMB Daybreak - 14 November 2014
Target RM7.50 (Stock Rating: ADD)
Following MPI’s 1QFY15 briefing, we remain confident about its growth prospects that are driven by management initiatives to grow profitability via advanced packages and efficient cost-management. Management is guiding for sequential 0-5% decline in revenue due to a seasonal inventory correction and potential softening in industrial and consumer segment demand, but it expects stronger contribution from advanced packages and automotive earnings in 2HFY15. We keep our Add rating and target price of RM7.50, based on 14.3x CY16 P/E – on par with its 2-year historical mean. MPI is our top pick in the semiconductor sector due to its strength in operating efficiency and faster transition to higher-margin packages.
What Happened
Approximately 20-25 analysts and fund managers attended the analyst briefing hosted by MPI’s group managing director, Mr Peter Yates. There were no surprises from the briefing, though management did turn cautious on the 2QFY15 outlook due to a potential slowdown in industrial and consumer segment demand and seasonal inventory correction. Hence, management is guiding for 0-5% sequential sales decline in the coming quarter, which is similar to its competitors' guidance. In addition, management highlighted that the company allocated a combined RM5m provision in 1QFY15 to account for deferred tax expenses, employee stock options and bonus allocations.
What We Think
We believe that MPI's growth prospects are intact, led by resilient contribution from newer and advanced packages serving the smartphone and table (S&T) segment and rising sensor demand from the automotive segment. Moreover, we think that its expansion into the array segment and its decision to offer wafer-level service is a positive move to become a full-fledged assembly and packaging services provider for its customers. Apart from that, the overall industry outlook is expected to remain positive with 7-8% sales growth forecast for the 2014-15 period, coupled with moderate industry capacity expansion.
What You Should Do
Accumulate the stock. MPI's share price has declined by 22% since its YTD high in Aug. Hence, the share price pullback offers a good buying opportunity for investors to ride on MPI’s growth. The stock trades at 11.7x CY15 P/E and 1.3x CY15 P/BV, which are below its respective historical means of 14.3x and 1.9x. Stronger earnings contribution from the S&T and automotive segments, higher dividend payout and potential M&A activities are potential re-rating catalysts.
Source: CIMB Daybreak - 14 November 2014
