KUALA LUMPUR: Malaysian Pacific Industries
(MPI), which has a healthy net cash balance of RM593mil or RM2.82 per share at end-September 2017, is exploring potential mergers and acquisition (M&A) activities, says CIMB Equities Research.
“For example, it is identifying companies with capabilities in manufacturing fan-out wafer level packaging, cavity packages, module level assembly, 3D printing, flexible board, etc,” said the research house on Thursday.
It said that any potential M&A activity will leverage its strong automotive engineering capabilities at Carsem M-Site.
“The group is targeting to outgrow the global semiconductor industry demand, guiding for 6-7% sales growth in FY18, to be driven by stronger sales from its automotive and industrial (A&I) segment which generates higher profits than its consumer segment.
“Nevertheless, it still expects to grow its communication segment, driven by a healthy demand outlook from Chinese smartphone brands such as Huawei, Vivo and Oppo.
“We maintain our Hold rating on MPI with an unchanged RM15 target price, still based on 15 times price-to-earnings (P/E) -- in line with the sector mean -- as we roll over our valuation to end-2018F,” it said.
CIMB Research advocates switching to Inari for exposure to the tech sector given its stronger three-year EPS CAGR of 22%.
On the results for the first quarter ended Sept 30, 2017, core net profit was slightly below expectation at 19% of the research house and consensus FY18 forecasts due to higher-than-expected material cost and forex volatility.
MPI’s net profit fell 9% on-quarter in 1QFY18, mainly due to the strengthening of the ringgit against the US$.
“We tweak our FY18-20F EPS by 1%-4% to account for margin erosion from the strengthening of ringgit against US$ and to reflect the increase in material cost," it said.
CIMB Research said revenue fell 0.4% on-quarter in 1QFY6/18 to RM388mil from RM389mil in 4QFY6/17 due to the strengthening of the RM against the US$ (+1.6% on-quarter). In US$ terms, MPI’s revenue rose 1.2% on-quarter, within management’s guidance of 0%-5% growth.
Overall, core net profit fell 19% on-quarter to RM38.4mil, after stripping out the forex losses of RM2.3mil and provision for inventory write-off of RM790,000.
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