• Maintain BUY and MYR38.50 TP, 56% upside with c.2% FY25F (Jun) yield. 1QFY25 core profit of MYR40.3m (+16% YoY) met expectations. Its utilisation rate should improve on higher automotive and industrial demand, as well as new improvements at its Suzhou, China plant. Although a major client’s expansion has had setbacks, Malaysian Pacific Industries’ share price weakness and attractive risk-reward profile presents an opportunity for investors to accumulate – riding on a new chip sector upcycle, the recovery of its China unit, and its exposure to silicon carbide (SiC) packaging.

• Within expectations. 1QFY25 core PATAMI of MYR40.3m meets expectations – despite making up only 15.2% and 18.7% of our and consensus full-year forecasts – and we expect stronger quarters ahead. Its EBITDA margin improved marginally by 130bps despite unfavourable FX movements. 1QFY25 revenue (in USD) continued to trend upwards by 4.9% YoY or 3.3% QoQ to USD116.3m, supported by stronger sales from Asia- and Europe- based customers. Meanwhile, core PATAMI grew 17.7% QoQ or 16.3% YoY to MYR40.3m on lower depreciation charges and an effective tax rate despite the unfavourable FX rate. A first interim DPS of MYR0.10 was declared (and will go ex on 9 Dec).

• Outlook. MPI anticipates a challenging operating environment ahead – determined by geopolitical instability and inflationary pressures. As such, it will focus on cost optimisation through automation and process enhancements. However, its China unit Carsem Suzhou continued to record profitability on better utilisation rates. The automotive segment is expected to book stronger numbers in China, cushioning any weakness from the Ipoh segment. That said, MPI’s industrial segment should continue expanding. Its consumer electronics division should also pick up ahead, with inventory now at healthy levels.

• Market trend. Despite the temporary disruption at its major SiC client’s operations due to the recalibration of capex amid a correction in the pricing of SiC wafers, we still expect the SiC and gallium nitride or GaN packaging business to gain pace and drive MPI's long-term growth – given the newfound affordability of the materials. MPI will continue benefit from the recovery of the semiconductor sector as the demand for EVs, AI and data centre-related chips continues to rise. Its healthy pipeline and orderbook should continue to buoy its utilisation rate, too, despite the uneven recovery of the market.

• We maintain our forecasts and TP. Our MYR38.50 TP – which includes a 2% ESG premium – is pegged to an unchanged 30x FY25F P/E (at +1.5SD from its 5-year mean). Downside risks: Slower-than-expected orders, loss of a major customer, obsolescence of technology hampering its production capability, and unfavourable FX rates.

Source: RHB Securities Research - 26 Nov 2024