Malaysian Pacific Industries’ (MPI) 1QFY23 (Jun) net profit (PATAMI) of MYR49.7m missed expectations on lower-than-expected margins and topline – dragged down by the lower utilisation rate at the Suzhou plant and higher fixed costs.
RHB Research has cut its earnings and target price (TP) of MPI accordingly to account for prolonged lacklustre demand in the consumer electronic space. Nonetheless, with the share price consolidating to the current 17x FY24F P/E, the research house reiterates its optimism on MPI as the company has exposure to the structural demand upsurge in the automotive segment in the mid-term.
Below expectations. 1QFY22 revenue of MYR564.0m (-7.8% QoQ and -3.5% YoY) and core PATAMI of MYR49.7m only account for 14.6% and 14.7% of the Street’s full-year forecasts. EBITDA margin contracted by 3pts YoY to 26.9% amid low utilisation at the Suzhou plant, higher depreciation charges, and electricity and staff costs. Coupled with lower revenue, these contributed to the weaker performance YoY.
Geographically, sales in Asia were down by 15% YoY, partially cushioned by stronger US (+7%) and Europe segments (+25%). MPI declared a first interim dividend of 10 sen/share (flat YoY), going ex on 7 Dec.
Softening demand may persist. While 1Q is seasonally weak for MPI, demand in the consumer electronic markets is likely to remain soft for the coming quarter, affecting the utilisation rate at the Suzhou facility. Conversely, demand at M-Site and S-Site remains healthy, with challenges on manpower and material shortages. The research house expects the new M-Site (+70k sq ft floor space) and additional 35k sq ft space at S-Site to cushion the weakness from the Suzhou plant once they start contributing in 2HFY23, given the relatively solid demand for micro-electromechanical
systems or MEMS sensors and automotive products.
Forecasts. RHB Research has cut its FY23F earnings by 13.5% but leave FY24F-25F numbers relatively unchanged after factoring in lower margin assumptions and slower topline growth.
Consequently, TP is now lowered to MYR33.60 based on an unchanged 21x CY23F P/E, in line with peers and KLTEC’s mean. Its TP includes a 2% ESG premium based on its proprietary methodology.
The research house maintains BUY rating on MPI as it stands to benefit from its expansion plan, China’s localisation efforts, and advanced packaging technology, ie the power module in silicon carbide packaging and gallium nitride for the automotive electrification space.
Key downside risks identified are Slower-than-expected orders, material shortages, and unfavourable FX movements.
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