Malaysian Pacific Industries - Flattish growth ahead

We attended the company’s post-result briefing yesterday and came back with the view that the company’s outlook continues to remain challenging due to the global economic weakness and the slower growth in the PC market. Management is guiding for a flat QoQ revenue in 1Q13. As the industry may grow slower than expected, we have slashed our FY13 full year NP by  24% to RM32.0m as compared to our earlier more optimistic NP estimate of RM42.1m. The main changes to our FY13E assumptions are 1) a lower group’s sales of 5.9% YoY (in line with the industry growth) vs. 11.6% YoY previously and 2) an increase in our raw material price assumptions. However, things should turn better thereafter. We are forecasting the group’s revenue and earnings to grow 7.5% and 95.3% in FY14E with FY15E revenue and earnings to grow at a pace of 9.8% and 44.7%. However, based on our now lower FY13E earnings, our MPI TP has also been cut  to RM3.10 (from RM3.50 previously) based on a new targeted FY13 Price/Forward NTA of 0.9x (-1.5 SD below its historical 3-year mean). We are maintaining our OUTPERFORM rating for the company as the stock still offers a total upside of 21.4% (capital gain of 14.0% and dividend yield of 7.4%).

Snapshot of 4Q12 results.  MPI recorded an increase in revenue of 16.5% QoQ due mainly to the higher unit shipment of the electronic components of smart phones and tablets. The increase in revenue as well as a tax adjustment of RM7.5m (vs –RM0.4m in 3Q12) led to a higher net profit of RM13.5m (vs –RM7.4m in 3Q12) in 4Q12. Margin-wise, its EBIT margin increased 2.4% QoQ (vs. -2.2% in 3Q12) due to the contribution from high-margin products such as MLP and QFN. 

Expecting a slightly lower QoQ growth in 1Q13. Management expects a slightly lower revenue in 1Q13 due to the weakening of consumer spending in the PC market. The group’s Carsem Suzhou plant, which mainly involved in the production of PC components, near-term productivity remains bleak given the unexciting PC outlook. According to IDC (a market research house), it has cut its outlook on PC growth in 2012 to a mere 0.9% YoY as the shipments of PC slowed, with consumers more reliant on smart phones and tablets, and also due to the generally weaker global economy. Product-wise, the group still sees strength in its high-margin products such as MLP and QFN, which are driven by the growth in Apple and Samsung products. This is in line with our view that the high-margin products will be able to contribute more sales volume and better margins to the group going forward. 

Smart phones and tablets are leading the market. Smart phones and tablets are among its other market segments (Auto,  PC, Industrial and Feature phones) that recorded an increase of 3ppt in revenue from 27% in 3Q12 to 30% in 4Q12, even while the PC segment recorded a flattish revenue contribution of 12% QoQ. As of Jul 2012, the revenue contribution from the PC segment was slightly lower by 1ppt to 11%. Meanwhile, the group’s CAPEX will remain at around RM200m in FY13  due to the concentration on its high-margin products (MLP and  QFN), which will be driven by the smart phones and tablets markets.

Source: Kenanga