CHIPMAKER Malaysian Pacific Industries Bhd (MPI) is well positioned to benefit from an industry upturn over the long term, although its business visibility remains poor, as its management is unable to provide any clue on revenue guidance, according to an analysis by Singapore-based OCBC Research.
OCBC, which has a market perform on the stock, said that from its latest meeting with MPI, the management remained non-committal on the revenue guidance in the quarters ahead, with visibility still poor as most orders were still secured on a spot basis.
The research house said, nevertheless, the semiconductor manufacturer had improved its position to capture a larger share in the assembly and testing market.
It said that demand for turnkey solutions and outsourcing activities by integrated device manufacturers would only increase from here on. We believe that MPI is well positioned for this change and will perform well in an industry upturn, it added.
OCBC said the MPI management had hinted that it would be announcing, on Feb 10, a major assembling contract for a client, a job that could possibly increase its revenue by 10% per quarter.
The contract, which will not require much capital expenditure, will boost MPI's bottomline performance from the fourth quarter of the financial year ending June 30, 2003, with the full impact coming in financial year 2004.
OCBC said the management of MPI was also negotiating on a range of tax incentives for subsidiary Carsem, whose pioneer status ends in June 2003. Carsem (M) Sdn Bhd and Carsem Semiconductor Sdn Bhd, both 70% owned subsidiaries of MPI, are mainly involved in sub-assembly and testing.
The research house viewed this move positively because if the tax incentives were granted, Carsem's effective tax rate would be substantially lower than the statutory tax rate.
Depending on the effective tax effect to the bottom line, there could also potentially be tax writebacks, it said, adding that the outcome of this discussion with the relevant authorities should be known by April.
OCBC said the fact that MPI was set to bag a major assembling contract testified to its underlying strengths. It believed that MPI's competitive edge was a result of three factors, the first being its strong balance sheet and stable cash flow, with net gearing position (net debt of RM114mil) improving to 16% from 23% in June 2002.
Secondly, MPI has a strong parent company, the Hong Leong group, which supports its franchise and, thirdly, MPI has a strong range of products, including micro loaded packages.
As such, it is not difficult to believe that MPI will command some form of stock market premium over its competitors over the long term, it added.
OCBC said the uncertainty surrounding the medium-term prospects of MPI had been anticipated, although its recent profit performance was well below par. It said its outperform call earlier on MPI was on better prospects in the second half of this year.
We continue to believe that the recovery will be more evident in the later part of this year as a result of renewed spending by global telecommunication companies and sustained demand for consumer electronics, it said, adding that MPI's share price performance would continue to be driven by news flow in the technology industry.
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