Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES
Research House: RHB
Malaysian Pacific Industries Bhd
(Jan 26, RM5.55)
Upgrade to market perform at RM5.51 with revised fair value RM5.96 (from RM5.17): MPI's 6MFY11 core net profit of RM51.1 million (+17.6% year-on-year) was above our expectations but in line with consensus, accounting for 59.2% and 52% of our and consensus full-year estimates. This was mainly due to lower than expected operating expenses as we had anticipated higher costs on the back of rising raw material costs.
Revenue in 2Q was flat (-0.8% quarter-on-quarter) while earnings before interest, tax, depreciation and amortisation (Ebitda) margins fell by only 0.2 percentage point to 22.8% (1Q: 23%). However, due to the higher minority interest of RM6.7 million (1Q: RM5.3 million), net profit fell by 2.1% q-o-q but this was partially offset by a lower effective tax rate of 8.2% (1Q: 10.4%).
MPI is optimistic on the demand for its X3-MLP (micro leadframe packages) as these are highly used in space-constrained devices. We are positive on these developments as they will raise MPI's exposure to fast-growing segments such as mobile devices and tablet computers. Recall that MPI had already shipped 25 million units per month in December 2010 from less than one million per month in April 2010.
Risks to our view include: (i) slower than expected economic recovery dampening demand for equipment and consumer electronics; (ii) strengthening of the ringgit against the US dollar; and (iii) higher raw material costs.
We are raising our FY11/13 net profit by 21.6%, 10.5% and 10.4% respectively mainly to reflect: (i) reduction in operating expense assumptions as we expect MPI will be able to partially pass on raw material costs to customers in addition to higher conversion to copper wire bonding from gold wire bonding; (ii) imputing higher contribution for its module packages; and (iii) adjustments to our forecasts.
We are more optimistic on the near-term outlook on the industry as MPI's resilient earnings have alleviated our concerns of a potential capacity glut. We had expected a sharper sequential decline given the less optimistic guidance by management, which we believe implies a faster than expected inventory correction by its customers.
Going forward, we believe MPI's earnings should remain resilient driven by stronger than expected demand for MLP and micro-electro-mechanical systems packages. Post revision in earnings, our fair value is raised to RM5.96 (from RM5.17) based on 11 times CY11 EPS. Therefore, we are upgrading our recommendation to 'market perform' (from underperform). ' RHBRI, Jan 26
This article appeared in The Edge Financial Daily, January 27, 2011.
Company Name: MALAYSIAN PACIFIC INDUSTRIES
Research House: RHB
Malaysian Pacific Industries Bhd
(Jan 26, RM5.55)
Upgrade to market perform at RM5.51 with revised fair value RM5.96 (from RM5.17): MPI's 6MFY11 core net profit of RM51.1 million (+17.6% year-on-year) was above our expectations but in line with consensus, accounting for 59.2% and 52% of our and consensus full-year estimates. This was mainly due to lower than expected operating expenses as we had anticipated higher costs on the back of rising raw material costs.
Revenue in 2Q was flat (-0.8% quarter-on-quarter) while earnings before interest, tax, depreciation and amortisation (Ebitda) margins fell by only 0.2 percentage point to 22.8% (1Q: 23%). However, due to the higher minority interest of RM6.7 million (1Q: RM5.3 million), net profit fell by 2.1% q-o-q but this was partially offset by a lower effective tax rate of 8.2% (1Q: 10.4%).
MPI is optimistic on the demand for its X3-MLP (micro leadframe packages) as these are highly used in space-constrained devices. We are positive on these developments as they will raise MPI's exposure to fast-growing segments such as mobile devices and tablet computers. Recall that MPI had already shipped 25 million units per month in December 2010 from less than one million per month in April 2010.
Risks to our view include: (i) slower than expected economic recovery dampening demand for equipment and consumer electronics; (ii) strengthening of the ringgit against the US dollar; and (iii) higher raw material costs.
We are raising our FY11/13 net profit by 21.6%, 10.5% and 10.4% respectively mainly to reflect: (i) reduction in operating expense assumptions as we expect MPI will be able to partially pass on raw material costs to customers in addition to higher conversion to copper wire bonding from gold wire bonding; (ii) imputing higher contribution for its module packages; and (iii) adjustments to our forecasts.
We are more optimistic on the near-term outlook on the industry as MPI's resilient earnings have alleviated our concerns of a potential capacity glut. We had expected a sharper sequential decline given the less optimistic guidance by management, which we believe implies a faster than expected inventory correction by its customers.
Going forward, we believe MPI's earnings should remain resilient driven by stronger than expected demand for MLP and micro-electro-mechanical systems packages. Post revision in earnings, our fair value is raised to RM5.96 (from RM5.17) based on 11 times CY11 EPS. Therefore, we are upgrading our recommendation to 'market perform' (from underperform). ' RHBRI, Jan 26
This article appeared in The Edge Financial Daily, January 27, 2011.
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