Malaysian Pacific Industries Bhd’s recovery momentum still fell short of Kenanga Research’s expectations despite its the second quarter of the financial year ended on 31 December 2023’s (2QFY24) net profit almost doubled quarter-on-quarter (QoQ).
“We interpret the QoQ rise as an indication that the group is steadily progressing on its recovery path, although not at the momentum we had anticipated,” it said today in its Results Note today (Feb 22).
Kenanga said the semiconductor services firm’s first half of the financial year (1HFY24) results missed expectations.
“Its 1HFY24 revenue slipped 5% year-on-year (YoY) due to lower Asian order which constitute 50% of the group’s revenue while its net profit in similar period fell 31.5% as as overheads weighed by underutilised floor space, which was expanded.
“The demand volume from the European regions weakened but was partially cushioned by a meaningful increase in US orders, which increased by 25.9%.
“This underscores the concern of a tepid recovery in demand in Asia, particularly China, on soft demand for consumer electronics owing to
cautious consumer spending,” it added.
It said the 31.5% lower core net profit of RM48.7 million, made up only 30% and 35% of our full-year forecast and the full-year consensus estimate, respectively. The variance against our forecast came largely from elevated operating cost.
The research house cut its FY24 net profit forecast by 26%, maintained its FY25F numbers and MARKET PERFORM call.
Consequently, it reduced its target price (TP) by 11% to RM24.30 from RM27.20 based on an unchanged CY24F price-earnings ratio (PER) of 26 times, representing a 10% discount to peers’ forward average PER owing to the group’s subdued recovery momentum.
“Our TP reflects a 5% premium based on a 4-star ESG rating as appraised by us,” it added.
Kenanga said it is optimistic about the group’s sustained recovery momentum, underpinned by its ability to rein in costs, such as labour reduction at the Suzhou plant in China and optimise supply-chain efficiency.
“That said, it still pales in comparison to its former self during the peak of the recent up-cycle. Additionally, there is concern in the
forthcoming quarter, which is expected to be affected by the seasonal Chinese New Year break, leading to scheduled shutdowns within the
group.”
It added: “We like MPI for its strong exposure in the growing automotive semiconductor segment, its venture into promising new
technology and its superior expertise in power management chip packaging for data centres.
“However, its prospects over the medium term will be rather muted in the absence of a significant recovery in chip demand from the consumer electronics sector as well as data centres.”
The risks to the research house’s call are a weaker-than-expected recovery in the global chip sector, a further escalation in the Sino-US chip war, and the weakening of dollar.
