CIMB Research upgrades MPI to Add, retains RM10.80 target price

CIMB Equities Research has upgraded Malaysian Pacific Industries (MPI) to Add from Hold

KUALA LUMPUR: CIMB Equities Research has upgraded Malaysian Pacific Industries (MPI) to Add from Hold and retained the target price of RM10.80 as the as the worst is over for the chip maker.

It said on Friday MPI's share price is down 34% year-to-date due to weaker earnings delivery following the appreciation of the ringgit vs. US$. 

“However, we think the pullback in share price offers a good opportunity to accumulate the stock as the worst is over for MPI and we expect it to deliver higher earnings from 4QFY18 onwards on the back of higher automotive components shipment volume,” it said. 

CIMB Research said its target price of RM10.80 was still based on 13.5 times CY19F P/E (a 10% discount to its sector target P/E of 15 times),” it said.

It sees potential earnings accretive acquisitions, depreciation in ringgit against US$ and higher dividend payout as potential re-rating catalysts for the stock. However, it sees wafer supply constraints, appreciation in ringgit and lower dividend payout as key downside risks to its call.

MPI's revenue in 3QFY6/18 fell 7.3% on-quarter from RM396mil to RM366mil due to seasonal demand weakness and strengthening of ringgit vs. the US$. 

MPI posted weaker sales across all markets – Asia, the US and Europe, which fell by 5%, 11% and 11%, respectively. 

Overall, 3QFY6/18’s core net profit fell by 44.6% on-quarter to RM23mil, after adjusting for exceptional items like RM2.2m gain on derivatives and RM910,000 reversal in inventory write-off.

As for the 9MFY6/18 revenue, it dipped by 0.5% on-year, mainly due to reversal in forex movement. Stripping out the forex impact, MPI’s US$ revenue rose 3.5% on-year in 9MFY18. 

In spite of the stronger revenue, group earnings before interest, tax, depreciation and amortisation (Ebitda) fell by 15.7% on-year  due to higher raw material cost and reversal in forex movement. The Ebitda margin also contracted to 25.3%.

“Overall, the group’s core net profit fell 26.8% on-year to RM104.1mil. MPI declared a 19 sen DPS, bringing the full-year dividend to 29 sen, ahead of our forecast of 25 sen,” it said.