MPI’s 1HFY18 results comes in below expectations

KUCHING: Malaysian Pacific Industries Bhd’s (MPI) second quarter of financial year 2018 ( 2QFY18) results are out and cumulatively, the group’s first half of FY18’s (1HFY18) net profit has come in below estimates at RM77.7 million – meeting only 42 per cent of street estimates.

In a company report, Kenanga Investment Bank Bhd (Kenanga Research) reported that 1HFY18 net profit dipped despite the group seeing a 3 per cent year over year (y-o-y) higher revenue recorded as sales remained robust with an 18 per cent y-o-y sales increase in the group’s Asia market.

The research arm explained that the weakness in net profit was due to inflated material costs and an unfavourable US dollar (USD).

“At the operating level, EBIT dropped by 17 per cent on lower gross profit ( GP) margin of 17.4 per cent on higher material costs coupled with the much lower ‘other operating income of RM10.0 million.

“A significant swing of foreign exchange ( forex) impact was also observed, with losses of RM1.9 million versus the gains of RM14.7 million in 1H17,” explained the research arm.

Despite the weaker currency factor however, the group’s 2Q18 Ringgit revenue managed to record stronger growth of 2 per cent as it was underpinned by better sales from the Automotive sensor.

Going forward, it is expected that inflate material costs and weaker USD will continue to plague MPI alongside a slowing sale growth momentum of semiconductors.

Despite this, Kenanga Research reports that MPI’s management is still working hard towards achieving its previously guided USD- denominated top line growth of 5.5 to 7.5 per cent in FY18, which will outpace the industry’s growth forecast of 2.7 per cent in 2018.

AmInvestment Bank Bhd believes that earnings for the group will begin to pick up in the second half of financial year 2018 (2HFY18) as the company’s new product introductions (NPIs) over the past few years translate into job wins.

“Note that it would typically take 9 months to a 1 year to progress from NPIs to commercial production, should customers decided to engage MPI,” said the bank.

Besides that, the bank also reckons that the company’s prospects will remain bright due to its exposure in the automotive segment that is expected to see revenue growth at 7 per cent compound annual growth rate (CAGR) from FY17-FY20F on the back of rising global light vehicle sales and growth in semiconductor usage in the automotive sector.

“In addition, the company is well positioned to ride on the wave lf surging connected devices as its MLKPS are ideal in the area of RF applications,” added the bank.

On the other hand, Kenanga Research is less hopeful that management will be able to achieve this as they opine the group’s gestation period might take a few quarters to see meaningful growth and that wafer constraints will continue plaguing the semi-conductor industry in the near-term.

With that said, Kenanga Research is maintain its ‘Market Perform’ on the stock with an unchanged target price of RM11.30.

Similarly, AmInvestment Bank is also maintaining its ‘Hold’ call on the stock with a lower fair value of RM10.84 to reflect their FY18-FY20F net profit estimates trimming of 7 to 19 per cent as they revise their USD/MYR to 3.95 from 4.20.

“In spite of MPI’s bright prospects, we believe the company is fair valued at this price. MPI is currently trading at a CY18F price earnings multiple of 13 fold, on par with the average of the semiconductor manufacturing sector at 13 fold,” concluded the bank.