Malaysian Pacific Industries’ (MPI) 1QFY24 results met expectations with a second consecutive quarterly core net profit which more than doubled QoQ on a 6% expansion in top line thanks to a recovery in orders, particularly from the US.
Kenanga Research, in its Result Note today (Nov 16) cited that they maintain their forecasts but raise their TP by 13% to RM27.20 (from RM24.05) to reflect an upward trend in its peer’s valuations, maintaining a MARKET PERFORM call.
Within expectations
MPI’s 1QFY24 core net profit of RM16.5m (-68.7% YoY) made up only 10% of both our full-year forecast and the full-year consensus estimate. However, Kenanga deems the results are within expectations as they anticipate better earnings during the remaining quarters on a recovery in orders.
Results’ highlights
YoY, MPI’s 1QFY23 revenue declined 9% due to lower orders from the Asian (-21.8%) and European (-7.6%) regions, partially cushioned by a substantial increase in orders from the US (+34.4%), which now made up 23% of the group’s revenue (vs. 15.8% in 3QFY22). This points to a tepid recovery in demand in Asia, particularly China, on soft demand for consumer electronics owing to cautious spending by consumers.
On a brighter note, on a QoQ basis, its 1QFY24 revenue climbed 6.4% while its core net profit more than doubled (albeit from a low base), indicating the recovery momentum has extended from 4QFY23.
Turning the corner
They are optimistic about the group’s sustained recovery momentum, underpinned by its ability to rein in costs (e.g. labour reduction at the Suzhou plant, China) and optimise supply-chain efficiency. That said, it is still a pale shadow to its former self during the peak of the recent up-cycle and not spared the slowdown in the global semiconductor demand.
Kenanga is mindful that there are high expectations on MPI given its stature as one of the most resilient tech-related companies in trying times.
Forecasts
Kenanga raises their TP by 13% to RM27.20 (previously RM24.05) on a higher CY24F PER of 26x (previously 23x), to reflect an upward trend in its peer’s valuations. The TP reflects a 5% premium based on a 4-star ESG rating as appraised by Kennaga.
Investment thesis
Kenanga favours MPI for: (i) its strong exposure in the growing automotive semiconductor segment, (ii) its venture into eaker-than-expected recovery in the global chip sector, (ii) a further escalation in the Sino-US chip war, and (iii) the USD weakens.
Risks to their call include: (i) a weaker-than-expected recovery in the global chip sector, (ii) a further escalation in the Sino-US chip war, and (iii) the USD weakens.
