The semiconductor company said in notes accompanying its financial statements that profits were impacted by higher material costs arising from sales mix and higher commodity prices.(MPI chips- Filepic)
KUALA LUMPUR: CIMB Equities Research is maintaining its Hold call for Malaysian Pacific Industries
(MPI) with a lower target price of RM12 compared with the previous target of RM15.
It said on Tuesday the lower target price is based on a lower 13.5 times CY19 P/E, a 10% discount to the target sector P/E of 15 times in view of the gradual pick-up in A&I and negative sentiment from the strengthening of the ringgit against US$.
“We see a recovery in stronger A&I demand, depreciation in ringgit and higher dividend payout as key upside risks to our call, while weaker A&I demand, appreciation in ringgit and lower dividend payout are key downside risks,” it said.
CIMB Research said MPI’s revenue in 2QFY6/18 grew by 2% quarter-on-quarter from RM388mil in 1QFY6/18 to RM395m due to stronger sales contribution from European market (+5% quarter-on-quarter) amidst weaker sales contribution from the US.
Stripping out the currency impact of 2.3%, it estimated that MPI’s sales grew by 4.4% quarter-on-quarter, in line with 0%-5% sales growth guidance from management.
Overall, 2QFY18 core net profit grew 9.9% quarter-on-quarter due to a better product mix and lower depreciation expense. As expected, there was no dividend declared in the quarter.
MPI’s 1HFY6/18 revenue grew by 3.1% year-on-year due to stronger contribution from Asia (+5%). In spite of the stronger revenue, group EBITDA fell by 6.7% year-on-year due to higher raw material cost arising from a surge in commodity prices such as copper, which went up over 30% during the period.
EBITDA margin also contracted by 2.8 percentage points year-on-year to 26.7%. As a result of higher operating leverage, the group’s core net profit fell 8.6% year-on-year to RM80.7m.
“We cut our FY18-20F EPS by 10-14% to account for the higher raw material costs and to reflect the strengthening of the ringgit against US$.
“We apply a lower average forex assumption of RM4 for FY18-20F, in line with CIMB’s forecast.
“However, we see downside risk to earnings if the ringgit continues to strengthen against US$. Based on our sensitivity analysis, we estimate that every 1% movement in ringgit/US$ could impact the group’s EPS by 1.5%,” it said.
MPI expects automotive revenue contribution to grow from 25% in FY17 to 50% in FY20F, driven by the growing adoption of electronics content in vehicles and new design wins.
“We like the group’s strategy given that McKinsey & Co projects automotive semiconductor demand to grow at a compounded annual growth rate of 6% in 2015-2020F, higher than the overall semiconductor market forecast of 3%-4%.
“MPI is on track to create a fully-automated production line for automotive and consumer sensor applications in 2018.
“We understand that the line reached a 70-75% automation level as at end-FY6/17. The new initiative will help to improve production quality and allow MPI to redeploy resources to different projects,” it said.
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