Post MPI’s 2QFY24 investors briefing, we maintain our earnings forecast and Buy recommendation on MPI with an unchanged TP of RM32.35 based on a PE multiple of 28.0x CY24F EPS. Despite market uncertainty remains, management is cautiously optimistic that the group will be able to deliver a stronger 2HFY24. Meanwhile, management also revealed that the Suzhou operations has finally achieved breakeven. At this juncture, the group will continue to focus on the investment in relation to electric vehicles, silicon carbide and gallium nitride technologies, 5G testing, and MEMS sensors, among others.

Turning More Optimistic Despite Market Uncertainty Remains

To recap, 2QFY24 marked a 3rd consecutive quarter of QoQ recovery for MPI as it reported net profit of RM32.2mn (+94.6% QoQ) on revenue of RM522.8mn (+1.9% QoQ). According to management, the quarter’s sequential improvement was mainly due to cost prudence measures and better productivity. In term of the sales breakdown, 2QFY24 remained led by automotive at 43%. This was followed by industrial at 38%, consumer/communications at 13%, and PC/notebook at 5%. Despite market uncertainty remains, management guided that the PC and smartphone segments have finally ended 7 consecutive quarters of decline. Meanwhile, the global electric vehicle sales up by 47% annually.

Looking Forward to a Stronger 2HFY24

Despite the impact from closure of its lead frames manufacturing operations could be partially recognised in 2HFY24, Management is cautiously optimistic that the group will be able to deliver a stronger 2HFY24, underpinned by its healthy order book, particularly from non-automotive segment. On top of that, management also revealed that the Suzhou operations has finally achieved breakeven with utilization rate of 64% currently.

Medium-to-Long Term Prospects Remain Positive

We remain sanguine on MPI’s medium-to-long term prospects as it has remained guided by its: i) automotive centric strategy – with automotive segment to contribute ~50% of group revenue (versus ~43% in 2QFY24), and ii) strategic focus on capturing the next wave of opportunities via ongoing investments in silicon carbide and gallium nitride technologies, 5G testing, and MEMS sensors, among others. Meanwhile, the group will continue focusing on China’s fast-growing electric vehicle market. Supportive of this, the group has over 100 automotive projects in different stages of the pipeline while it is also transferring some technology and experienced manpower from the Ipoh operations to China. Management also revealed that the group is currently looking to set up a new plant in Klang Valley.

Valuation & Recommendation

In all, we maintain our earnings forecast and TP for MPI at RM32.35 based on a PE multiple of 28.0x CY24F EPS. Maintain Buy. We continue to like MPI for its robust project pipeline backed by the continued enhancement of its product portfolio, growing exposure to the high growth automotive segment, and robust balance sheet with net cash of RM935.7mn as of 2QFY24

Source: TA Research - 23 Feb 2024