Resilient growth in 2QFY6/22
? Malaysian Pacific Industries’ (MPI) 1HFY6/22 core net profit was in line, at 52%/51% of our/Bloomberg consensus’ full-year net profit estimates.
? We expect MPI to maintain double-digit US$ sales growth in FY6/22F, driven by robust demand for power management chips for EVs and data centres.
? Reiterate Add with a lower RM48.60 TP, based on a lower 26.6x CY23F P/E.
Sequentially higher sales and core net profit in 2QFY22
Revenue grew 4% qoq to RM608m in 2QFY22 due to stronger contributions from all key markets – Asia (+3.2%), US (+10.7%) and Europe (+2.1%). In US$ terms, MPI’s revenue rose 4.3% qoq to US$145m. Overall, core net profit rose 6% qoq to RM87m in 2QFY22, i.e. excluding RM2m in provisions for slow moving inventories. Meanwhile, w e expect a sequentially lower utilisation in 3QFY6/22F in view of a shorter operating period and lower worker availability due to rising Covid-19 infections in Malaysia and China.
1HFY22 core net profit rose 39% yoy
MPI recorded better-than-expected sales performance of RM1.2bn in 1HFY6/22 (+29% yoy) due to stronger contributions from the Asia (+28%), US (+32%) and Europe (+30%) markets. As a result of higher operating leverage, EBITDA margin expanded by 3.3% pts to 30.8% in 1HFY21. In addition, the group also incurred RM22m shared-based payment during the period. In spite of the higher cost, MPI’s core net profit jumped 39% yoy from RM123m in 1HFY21 to RM170m in 1HFY22.
Healthy demand outlook going into 2HFY22F
We expect a stronger 2HFY22F, driven by 1) resilient demand for cu-clip power packages for servers in data centres; 2) higher sensors volume driven by a recovery in the global automotive and EV market; and 3) higher demand for radio-frequency (RF) chips and modules for smartphones and 5G base stations. In addition, the group entered into an agreement with Suzhou Industrial Park Suxiang in Dec 21 to lease a plot of land to build a new semiconductor assembly, design and test plant in China. The group plans to begin construction by end-1QCY22F and targets completion by 1HCY23F. The group expects the new plant to have a production floor of over 1m sq ft, which will double the existing floor space at Carsem Suzhou, but the expansion will be carried out in multiple phases through internal funds and borrowings. MPI has a strong balance sheet with a RM890m (RM5.07/share) net cash position as at end-Dec 21.
Reiterate Add with a lower RM48.60 TP
The stock is down 27% YTD, mainly due to weak sentiment in the tech sector. We cut our target multiple from +2 s.d. to +1 s.d. above Malaysian outsource semiconductor (OSA T) sector’s 5-year mean P/E of 22x in view of the weak sentiment in tech sector. We think the premium valuation relative to the sector is justified due to MPI’s unique position as a beneficiary of the structural growth in e-mobility and electrification trend. Reiterate Add with a lower RM48.60 TP, based on 26.6x CY23F P/E (vs. 31x previously).