RHB Research says buy MPI on share price weakness

RHB Research has upgraded Malaysian Pacific Industries (MPI) to buy with an unchanged target price of RM11.21, which is a 27% upside plus 3.8% FY19F yield.

KUALA LUMPUR: RHB Research has upgraded Malaysian Pacific Industries (MPI) to buy with an unchanged target price of RM11.21, which is a 27% upside plus 3.8% FY19F yield.

It said on Monday despite overall softness in the semiconductor sector, the current share price weakness represents a good buying opportunity as the stock is trading at only 11.8 times FY20F P/E, and ex-cash P/E of 7.3 times vs the sector average of 13-14 times. Its net cash per share was at MYR3.28 as of 3QFY19.

RHB Research said MPI's 9MFY19 results were within expectations. The better YoY performance (+12.4%) was on better margins and favourable forex. A second interim dividend of MYR0.17 was declared. 

MPI's 3QFY19 core net profit was up 6.6% YoY due to higher margins from automotive products and improved operating efficiencies, despite US$ revenue being down by 13.7% – this is due to cost and product rationalisation. 

The diversification into new products such as automotive sensors and servers also contributed to the stronger margin given uncertainties in the smartphone segment.

However, the results were weaker sequentially. The 3QFY19 core profit was down 46.3% QoQ mainly on lower revenue (-17.1%). The weaker topline was caused by slower orders from the general weakness in the sector, compounded by an unfavourable US$/ ringgit rate, which averaged 4.092 in 3QFY19 vs 4.171 in 2QFY19.

RHB Research said the World Semiconductor Trade Statistics (WSTS) forecasts that the semiconductor market would contract by 3% in 2019 on the sector-wide uncertain outlook, on top of latest developments with regards to the US-China trade war. 

“Management sees a challenging business environment in 4QFY19 and will continue to strengthen the group’s position by improving operational efficiencies with more automation and better product development.

“Our forecasts remain unchanged as the results were in line. Risks to our call include slower-than-expected orders, further escalation in the US-China trade war, and a stronger-than-expected ringgit against the US$,” it said.