MPI’s 9MFY24 met expectations. Its 9MFY24 core net profit surged 53% on sustained recovery at its Suzhou plant and the discontinuation of loss-making lead frame unit. We are positive on its outlook as the recovery of the semiconductor sector trickles down from the front-end to the back-end. We keep our forecast but raise our TP by 48% to RM40.14 (from RM27.10) and upgrade our call to OUTPERFORM from MARKET PERFORM.

MPI’s 9MFY24 core net profit of RM81.4m (+53.1%) came in within our expectation at 70% of our full-year forecast, but missed market expectations at only 61% of the full-year consensus estimate.

YoY, MPI reported a flattish revenue performance in 9MFY24. The group experienced weaker performance from the Asian region (-3.6%) and European region (-4.1%), which contributed 51% and 28% of the group’s revenue, respectively. However, the weakness was entirely offset by a meaningful increase in loading volumes from the US region (+18%), which made up the remaining 21% of the group’s revenue. Focusing more on its operational improvements, the group benefited from improved utilisation rate as its Suzhou plant achieved breakeven level since 2QFY24 coupled with the cessation of its underperforming lead frame operation which was previously recording losses of RM10m net loss per quarter. This led to a 53% leap in its 9MFY24 net profit despite a flattish revenue performance.

Examining its QoQ performance, 3QFY24 revenue saw a modest increase of 0.6%, while net profit inched 1.9% upwards. Although these figures might appear immaterial at first glance, they are actually commendable when considering: (i) 3QFY24 is typically weaker due to the scheduled plant shutdown during the Chinese New Year break, and (ii) the one-off redundancy costs associated with shutting down the loss-making lead frame unit.

Expecting a better 4QFY24. We are optimistic for a stronger 4QFY24 in the absence of one-off severance pay-outs on the discontinuation of its loss-making lead frame unit in 3Q and as utilisation in Suzhou continues to improve. Additionally, as front-end semiconductor players have been experiencing an upswing since late 2023, the group is beginning to see a trickle-down effect, albeit gradually. This, coupled with its continued efforts to rein in on cost and optimise supply-chain efficiency should add on to the recovery momentum.

Forecasts. We maintain our FY24-25F numbers and introduce FY26F net profit forecast of RM289.1m, representing 23% YoY growth.

Valuations. We increase our TP by 48% to RM40.14 (from RM27.10) based on a rolled forward base year of CY25 (from CY24), pegged to an unchanged PER of 29x, in line with peers’ forward. Our TP reflects a 5% premium based on a 4-star ESG rating as appraised by us (see Page 4).

Investment case. We continue to like MPI for: (i) its strong presence in the growing automotive semiconductor segment, (ii) its venture into promising new technology such as gallium nitride and silicon carbide, and (iii) its superior expertise in power management chip packaging for data centres. Upgrade to OUTPERFORM from MARKET PERFORM.

Source: Kenanga Research - 17 May 2024