Key takeaways from MPI’s analyst briefing yesterday: (i) sequential q-o-q top-line decline expected, (ii) it intends to spend RM200m in capex, and (iii) the second phase of its Suzhou plant has been qualified to commence operations. Even though MPI’s results came within expectation, we are cutting our FY13 net profit estimate by 14% to incorporate higher opex assumptions. We are also introducing our FY14 numbers. In view of the weaker outlook of the global semiconductor sector, we are downgrading the stock to NEUTRAL from TRADING BUY, with a lower FV of RM2.72 based on 0.8x CY13 P/NTA (reverting back to a 40% discount to the historical five-year sector average of 1.4x).
Weaker outlook, in line with global numbers. During yesterday’s analyst briefing, management guided that MPI’s sequential q-o-q top-line is likely to decline, or remain flat at best. Over the past month, management saw and acknowledged that its sales numbers were sluggish given the reduced inventory re-stocking initiatives among customers. The earlier expected recovery in 2H seems highly unlikely now. Management did not shed light on its bottom-line outlook going forward.
Strong take-up for new packages going into smartphones and tablets. According to MPI, sales of new packages going into smartphones and tablets (S&T) have continued to gain traction in 4QFY12. This high growth segment now accounts for almost 45% of its product mix compared to a year ago at only approximately 15%. During the briefing, we glimpsed into a stripped down Samsung Galaxy SIII as well as the new Apple iPad – the devices had numerous MPI products embedded in them, ranging from accelerometer to communication chips. Besides Samsung and Apple, the company also has exposure to other major S&T players. Management foresees strong persistent demand for S&T and thus, its FY13 capex will be directed mostly to this area. MPI targets capex of RM200m for next year.
Phase 2 of Carsem Suzhou qualified. MPI’s wholly-owned subsidiary, China-based Carsem Suzhou (CS), has been qualified to commence operations of its phase 2 cleanrooms. CS’ Micro Leadframe Package (MLP) capacity has increased by four-fold from 5m units/day to 20m units/day. We also gather that the first volume of products will be shipped in 1QFY13. Recall that the company has in 3QFY12 secured a new customer, a leading smartphone producer, which is expected to add some USD25m/year to its revenue. Currently, CS contributes 15%-20% to MPI’s total top-line but that may possibly increase to 30%-40%, after incorporating the new customer.
Big enough portfolio of clienteles to mitigate single customer concentration risk. Management is comfortable with MPI’s client mix – its top 10 customers contribute 74% of sales while the top 30 account for 96%. Also, we gathered that its biggest customer, an integrated device manufacturer (IDM), contributes approximately 14% to its top-line.
Downgrade to NEUTRAL with revised FV of RM2.72. In view of the strong demand for new S&T-related products and contributions from CS’ new customer, we are nudging up our FY13 revenue forecast slightly by 3%. However, we are cutting our FY13 net profit estimate by 14% to incorporate higher opex assumptions. We also take the opportunity to introduce our FY14 financial forecasts. We are downgrading the stock to NEUTRAL, with a revised FV of RM2.72 based on 0.8x CY13 P/NTA (reverting back to a 40% discount to the historical five-year sector average of 1.4x). The downgrade is to reflect the weaker outlook of the global semiconductor sector.
Source: OSK
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