MPI faces near-term setback in China on extended lockdown

PETALING JAYA: Amid softer semiconductor demand, Malaysian Pacific Industries Bhd (MPI) could see lower sales and profitability in the financial year 2023 (FY23).

However, CGS-CIMB Research still like the stock as it continues to ride on structural growth opportunities in the silicon carbide and gallium nitride segments.

The manufacturer of integrated circuits, semiconductor devices and electronic components saw softer sales in the fourth quarter of FY22 (4Q22) following an extended lockdown in China due to Covid-19.

The research firm noted that the group’s US dollar revenue fell 3.6% quarter-on-quarter (q-o-q) to Us$140.7mil (Rm630.9mil) in 4Q22, due to weaker sales from Asia and the US market.

“The group attributed the weaker sales, which was broadly in line with our expectation, to a drop in utilisation at Carsem Suzhou, following the extended Covid-19 lockdowns in selected cities and provinces in China,” said CGS-CIMB Research.

However, the research firm said the softer sales was partially offset by favourable foreign exchange movement in the quarter as the ringgit depreciated by 5.3% q-o-q in 4Q22.

This resulted in MPI’S core net profit falling marginally by 1.1% q-o-q to Rm82.2mil in 4Q22.

On a brighter note, MPI recorded better-than-expected sales performance of Rm2.4bil in FY22 due to stronger year-onyear contributions from Asia, the United States and Europe.

As a result of higher operating leverage, earnings before interest, taxes, depreciation and amortisation margin – which measures a company’s operating profit as a percentage of its revenue – expanded 2.6% points to 30.7% in FY22.

Meanwhile, Kenanga Research said MPI’S long-term potential still stands but immediate prospects were fully valued at the current share price.

“Having achieved a shining record of uninterrupted quarterly growth over the past two years, the group has now entered into a phase of lower growth quantum, given the current high base earnings.

“Even being one of the best managed companies in the semiconductor space, MPI also cannot escape the impact of the ongoing chip shortage, as its Suzhou plant has seen utilisation rates tapering due to lower wafer loading volume caused by the disruptive lockdowns in China,” it added.

That said, it likes the group’s longer-term growth potential, given its unique exposure to a growing segment such as silicon carbide and gallium nitride.