Malaysian Pacific Industries Bhd
(August 15, RM14.14)
Maintain outperform with an unchanged target price of RM14.85: Malaysian Pacific Industries Bhd held its analysts day this week at its Carsem S-site in Ipoh, which saw a decent crowd of about 50 analysts and fund managers. Key highlights featured by the senior management team included: i) overview of semiconductor industry, segmental outlook as well as the group’s transformation over the past few years on its S-site, M-site and Suzhou plant; ii) new products and technology development road map; and iii) investment in automation towards Industry 4.0, followed by the plant tour on its S-Site.

While worldwide semiconductor market is expected to grow by only 2.7% in 2018, management is looking at a more optimistic top-line growth of 5.5% to 7.5% in financial year 2018 (FY18) (vis-à-vis our conservative growth of 1%) which will be driven by its new products and strategic positioning in both high-growth (communication) and defensive (automotive and industry) segments. We believe this is highly possible considering the new product road map (advance packaging and testing, new thermal materials), not to mention the commencement of production for advanced sensors starting from the third quarter of FY17 (3QFY17) that had already passed the stringent qualification stage. Besides top-line growth strategy, the group is also investing in higher automation (with better yield and higher efficiency), which will eventually evolve into Industrial 4.0.

Management noted that the automotive, communication and industrial segments will be key focus areas in anchoring growth for the next few years. On the automotive side, which contributed 25% as of 3QFY17, advanced sensors packaging projects that started a few years back will finally see fruition with production commencing from July 2017 for top global auto components suppliers. We are particularly positive about this given that automotive segment provides relatively stable earnings base given its long life cycle, which will also help smoothen the group’s earnings volatility caused by cyclical (communication) segments. Meanwhile for the communication (contributed 42% as of 3QFY17) and industrial (contributed 22%, mainly from data server) segments, management continues to see resilient demand given flagship smartphones launching in the second half of 2017 as well as the growing need for data centre in the era of big data.

We maintain “outperform” call with a TP of RM14.85 (based on 15 times FY18 price-earnings ratio). Post meeting, we maintain our “positive” conviction on the medium-term prospects of the group given the greater visibility of its products and technology road maps coupled with the right positioning in balancing its products portfolio. While our forecast for FY18 is still on the conservative side vis-à-vis management’s targets, we maintain our FY18 earnings for now pending full-year results to be released tomorrow. Even so, our TP of RM14.85 as well as dividend assumptions still warrant a total upside of 15.5%. — Kenanga Research, Aug 15