Despite market uncertainty remains, management is confident that the group will be able to deliver a stronger 4QFY24. Management also guided that the automotive centric strategy remains intact, as the automotive segment is poised for robust growth in the coming years. Moving forward, 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. We take this opportunity to increase the target PE multiple for MPI from 28x to 30x, which is closely in line with the stock’s 5-year mean. Consequently, we tweaked the target price higher to RM38.60. However, we downgrade the stock from Buy to Sell due to limit potential upside after the recent rally in share price.

The Following Are the Key Takeaways From the 3QFY24 Analyst Briefing:

Market Uncertainty Remains Despite Seeing Earnings Recovery

To recap, we had finally seen a decent earnings recovery for MPI as it reported net profit of RM81.4mn (+1.9% QoQ, +53.1% YoY) in 9MFY24. The decent performance was mainly driven by lower operating expenses, a stronger USD versus Ringgit, and higher interest income. In term of the sales breakdown, 3QFY24 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 shared that the PC and smartphone segments have finally ended 7 consecutive quarters of decline.

Looking Forward to a Stronger 4QFY24

Based on management’s guidance, the group is confident to record a stronger 4QFY24 as the group is no longer required to absorb the loss from Dynacraft Industries following the closure of its lead frames manufacturing operations. Additionally, the group has seen decent pick up from the packaging business for silicon carbide products. Together with some potential reversals, management is looking forward to a better 4QFY24.

Automotive Centric Strategy Remains Intact

Management remains optimistic on the long-term outlook of electrical vehicle market in China. The automotive segment is poised for robust growth in the coming years, driven by electrification, advanced driver-assistance systems, autonomous driving, safety, and connectivity trends. 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. Meanwhile, 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.

Valuation & Recommendation

We take this opportunity to increase the target PE multiple for MPI from 28x to 30x, which is closely in line with the stock’s 5-year mean. Consequently, we tweaked the target price higher from RM36.20 to RM38.60, based on a PE multiple of 30.0x CY25F EPS. However, we downgrade the stock from Buy to Sell due to limit potential upside after the recent rally in share price. Key downside risks include weaker-than-expected loadings, geopolitical tensions weighing on economic growth and disrupting supply chains, a strengthening of the Ringgit against the USD, and a surge in commodity prices.

Source: TA Research - 21 May 2024