As MPI’s 1QFY13 earnings missed our estimates, we are cutting our FY13/FY14 core earnings forecasts by 52%/30% respectively. We maintain our NEUTRAL call on the stock, with a revised FV of RM2.70, based on 0.8x CY13 P/NTA. Given the lack of catalysts in the near term, we expect the stock to trade sideways for the next three months. We advise investors to bottom-fish only in Feb or March 2013, to ride on the anticipated uptrend in global semiconductor sales in 2QCY13 (please see our 4 Oct 2012 report, “Good Pickings Amid The Gloom”).
2Q revenue to be flat. During its analyst briefing yesterday, MPI guided its 2QFY13 top-line to stay flat q-o-q. However, it is expecting 2HFY13 to be robust given the pent-up demand for its Micro Leadframe (MLP) and Quad Flat No-Lead (QFN) packaging offerings in Suzhou, China. We understand these segments are operating close to 100% capacity utilization rate vs the group’s average rate of 70%. Its bottomline is expected to remain black next quarter.
Riding on robust smartphone and tablet growth. Global demand for smartphones and tablets (S&T) continue to be vigorous, despite slipping demand for other technological products, which is dragging down the overall global semiconductor industry. Having repositioned itself to ride on the upside potential of S&T, the segment now accounts for 30%-35% of MPI’s sales. During the July-Sept quarter, the company also added three new S&T product lines - antenna tuners, front-end modules and proximity sensors.
Update on Carsem/Amkor dispute. As for the ongoing Carsem/Amkor dispute, we understand that MPI had, on 5 Oct, submitted a petition for a rehearing at the Court of Appeal. We also understand that no monetary remedies will be awarded to the winner and in the event that MPI loses – the worst case scenario – it will only have to halt shipments into the US (less than 1% of total shipments). Note that a US customer may not necessarily have to be US-based, as most shipments are directed to Asia anyways.
Maintain NEUTRAL, FV revised slightly lower to RM2.70. Given a tepid 2QFY13 outlook and a traditionally weak 3Q, we do not see MPI being able to meet our previous projections. As such, we are cutting our FY13/FY14 core earnings forecasts by 52%/30% respectively, as we had been overly aggressive with our previous revenue and profit margin assumptions. Accordingly, we are lowering our FV to RM2.70, based on the same 0.8x CY13 P/NTA (40% discount to the historical five-year sector average of 1.4x). Maintain NEUTRAL in light of minimal rerating catalysts on the horizon.
Source: OSK
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