AMINVESTMENT Bank has upgraded its call hold to buy for Malaysian Pacific Industries Bhd with a higher fair value of RM12.06 from a previous RM11.64, with a view that MPI will see recovery in its 2021 financial year despite the tough times now.
“Despite MPI’s near-term outlook being weighed down by the Covid-19 impact, we anticipate the group’s earnings to recover from FY21, driven by its positive longer-term prospects,” said AmInvest.
The longer-term prospects include the group’s portfolio rationalisation strategy that focuses on higher-margin specialised products, its leading market position in the ultra-thin Micro Leadframe Package (MLP) and increased research and development in microelectromechanical system (MEMS) sensors, and the group’s move towards producing silicon carbide power products with applications in electric vehicles.
The research house said the company’s strong net cash position of RM798 mil as of Dec 31 2019, also allows for “meaningful merger and acquisition opportunities in the electronics manufacturing services (EMS) and modules sectors.”
Carsem Malaysia Sdn Bhd, a subsidiary of the group, sees its pipeline full and intact, though production expenses could be elevated during the Movement Control Order (MCO) period, leading to higher logistics costs and delays in customer audits, which constrains MPI’s supply chain.
The expenses include staff wages and overtime payments with restricted production, travel restrictions, as well as additional costs from requirements such as increased sanitisation needs and protective equipment like masks.
“As such, we have factored in a weaker second half of the group’s 2020 financial year into our forecasts due to the impact of the MCO,” said AmInvest.
With the announcement of the MCO, MPI was still allowed to operate due to it being part of the electrical and electronics sector, which was listed as an essential business. However, with one of the conditions set by the Ministry of International Trade and Industry being that MPI has to reduce its workforce to at least 50%, the utilisation rate of the company’s local facilities remains at 42%. Its local operations contribute about 70% of the group’s revenue.
MPI’s Suzhou plant, on the other hand, is still at a 104% utilisation rate, with most of its workforce having returned after China’s easing of its Covid-19 measures. These operations contribute about 30% of group revenue, with customers mainly comprising local Chinese Outsourced Semiconductor Assembly and Test (OSAT) companies.
At noon close, MPI’s shares were unchanged at RM10.34, with a low volume of 200 shares traded. — April 16, 2020
