MALAYSIA Pacific Industries Bhd (MPI) is one of the best performing Composite Index (CI) component stocks on the KLSE rally.
The chipmaker has gained RM5.60, or 35%, to RM16 last Friday since April 2. It had outperformed the CI by more than 30% in the past 3½ months.
The substantial rise of MPI share price was mainly due to the better news flow in the global semiconductor sector, and more importantly, the growing confidence in the American economy that has whetted investors' appetite for cyclical stocks, including technology counters.
The bullish sentiment on the US Nasdaq market spilled over to Asia.
Being the leader in the local semiconductor industry, MPI shares had garnered overwhelming interest that pushed its share price near to a 52-week high, OSK Research analyst Shin Kao Jack said.
Given its cyclical nature, MPI has a nice recovery story to sell when investors start pouring money into equities.
“This is a good stock for investors to ride on in the current high-beta stock trend. The brighter earnings prospect and the company's credible management make MPI appealing,'' said a dealer.
Several indicators that monitor the performance of the industry are confirming the worst is behind, although the recovery has yet to gather strength, being interrupted by events such as the Iraq war and the spread of SARS.
“The news flow has changed from negative to mixed. This is considered an improvement after having heard so much bad news during the industry downturn,'' said a senior analyst at a local stockbroking house.
New orders among the US computer manufacturers and electronics products have been increasing since January, compared with a contraction a year ago.
Inventory of US computer manufacturers and electronic products have slid to the lowest level since 1997.
According to the Semiconductor Industry Association, the worldwide sales of semiconductors rose 2% to US$12.50bil in May from US$12.26bil in April. This was the third consecutive monthly increase.
On a year-on-year basis, the sale in May had increased 9.9% against US$11.38bil a year ago.
Certain investors may now recall the impressive upward trend that MPI had during the dotcom mania, which started in 1999, and ended the following year.
MPI share price hit a historical high of RM55 in February 2000. Investment analysts were then expecting the semiconductor stock rising to RM80 and even RM100 with bullish earnings forecasts.
But the share price melted and slid below RM10 in April 2001, when the industry downturn came.
As for the present surge of MPI shares, some analysts believe that the stock price has gone beyond its fundamentals.
“MPI is overvalued now,” said Shin, who has a sell recommendation on the counter and neutral on Unisem Bhd, although he agrees that the global semiconductor industry is on the recovery path.
An analyst from a foreign stockbroking house concurs that the stock is too expensive and advises his clients to take profit on the present hefty gains.
“We are seeing a flattish recovery. Not a boom. Earnings growth for MPI is unlikely to be as good as in the past when the industry was booming in 1999 and 2000. There is also the margin squeeze,'' the analyst said.
For the nine months ended March 31, MPI posted a net profit of RM8.24mil, compared with net loss of RM40.5mil in the previous corresponding period. Revenue rose to RM643.5mil from RM541.2mil previously.
Earnings per share came in at 4.14 sen for the period against loss per share of 20.34 sen previously.
Data compiled by Multex Global Estimates show the market consensus expects earnings per share (EPS) of 11 sen for the financial year just concluded on June 30, and 45.35 sen for the financial year ending June 30, 2004.
Credit Lyonnais, GK Goh and RHB Research have the highest EPS forecast among the 19 stockbrokers and they have buy or outperform recommendations on the stock at the current price.
Credit Lyonnais forecasts an EPS of 75.2 sen, GK Goh 78.6 sen and RHB Research 80.9 sen for the financial year 2004.
Based on the market consensus EPS of 45.35 sen in the FY04, MPI is trading at price-earnings (P/E) ratio of 34 times, which is rather high.
But the MPI valuation will not be stretched if it is based on the market consensus (comprised of 13 stockbroking houses) EPS of 96.30 sen for the FY05, nearly 17 times at RM16.
Somehow, the conservative analysts may think it is rather early to buy on the FY05 earnings forecast as that for the FY04 is still unknown. The company will soon release its full-year financial figures.
Analysts expect its bottom line to be boosted by the new contract with Analog Devices Inc and the tax benefit from the merger of Carsem (M) Sdn Bhd and Carsem Semiconductor Sdn Bhd. Analog is the world's fourth largest maker of digital signal-processing chips used in mobile phones and electronic devices.
The set of numbers may provide some ground for analysts to tweak their earnings forecast.
Did you find this article insightful?