Investment Highlights

• We maintain BUY call on Malaysian Pacific Industries (MPI) on a higher fair value of RM49.43/share (from RM40.34/share previously), pegged to CY25F PE of 30x, which is 2 standard deviation above its 5-year average of 18x, given the anticipation of demand recovery for semiconductors. We continue to ascribe a neutral ESG rating of 3 stars.

• We increase our FY24F-FY26F earnings by 18-34% to reflect the semiconductor upcycle on industrial demand and optimism on better contribution of silicon carbide (SiC) packaging solutions from the automotive segment. Key takeaways from an analyst briefing yesterday:
  
  ➢ Management alluded that 4QFY24 will be better than 3QFY24 driven by absence of losses from its subsidiary, Dynacraft industries, as MPI sold off the leadframe business, coupled with better product mix supported by high-margin packages of the automotive segment.
  
  ➢ The automotive segment remains steady, accounting for 43% of 2QFY24-3QFY24 revenue. We expect this segment to continue its growth trajectory, driven by increasing momentum in orders of silicon carbide (SiC) packaging solutions. Moreover, MPI plans to expand SiC solutions to the renewable energy sector, widening the group’s clientele base.
  
  ➢ MPI’s industrial segment accounted for 38% of total 3QFY24 revenue and remained stagnant QoQ. Management anticipates improved contributions from power packaging modules in the industrial segment in 2HCY24. This expected growth is driven by strong demand from data centres as power packages enhance electrical efficiency.
  
  ➢ MPI’s consumer segment accounted for 13% of 3QFY24 revenue, while the PC segment held 6%. Both segments are experiencing slow recovery from high inventory corrections. However, ongoing geopolitical tensions and persistently high interest rates will likely constrain consumer spending, potentially limiting growth in these segments.

• In the longer term, we expect a recovery in MPI’s earnings, driven by:
  
  (i) new customers in the automotive segment, underpinned by growing demand for electric vehicles,
  
  (ii) customers continuing to increase capital expenditure to expand chip-making production capacity, and
  
  (iii) increasing contribution from the industrial segment with a demand surge in data centres and need for more servers.

• From a valuation perspective, the stock is currently trading at a decent valuation of 24.9x CY25F PE vs. its 5-year peak of over 50x.

Source: AmInvest Research - 21 May 2024