Friday 29 Mar 2024
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KUALA LUMPUR (Feb 20): After announcing a huge dip in the quarterly results last week, the shares of Malaysian Pacific Industries Bhd (MPI) continued its downward trend as signs of weaker earnings is expected to persist for at least another quarter, no thanks to weaker demand and geopolitical tensions. 

MPI shares settled 3.81% or RM1.18 lower at RM29.80 with some 732,300 shares exchanging hands, after retreating as much as 6.39% in the early session. Since announcing its results last Thursday (Feb 16), the share price has decreased by 11.67%. At its last close, the group had a market capitalisation of RM6.25 billion.

Kenanga Research in a note on Monday (Feb 20) said that at a recent analyst briefing, MPI guided for a weaker quarter ahead as utilisation in its Suzhou plant trended lower to 30% from 41% in the previous quarter, below its breakeven level of 70%, as order visibility remained cloudy despite the easing of Covid-related restrictions in China.  

Its Suzhou plant is expected to continue operating below breakeven point in the coming quarters ahead, given its high exposure to the weakening consumer electronics segment, where global smartphones shipment declined 18.3% year-on-year (y-o-y) in the holiday-laden quarter, while PC shipments fell 28.5% y-o-y. 

The research house also noted the group’s plan to defer completion of its new plant in China to April 2024 from December 2023, as customers delayed their order replenishment.  

Meanwhile, MPI’s utilisation rate at both its Ipoh plants remains healthy, albeit a marginal dip due to lower orders from the data centre segment which is facing a slew of job layoffs. However, order for its automotive business, which accounts for some 43% of group revenue, remained fairly stable. 

The house also noted that MPI is anticipating higher operating costs in CY2023, with higher electricity tariff (additional RM10 million per quarter) and increased wages (RM1 million per quarter).  

Kenanga Research maintained its underperform on the stock with a target price of RM20. It continues to like MPI for its growing presence in the high-growth automotive segment, first mover advantage in the highly promising new technology based on silicon carbide and gallium nitride, and its superior expertise in power management chip packaging for data centres. 

Separately, CGS-CIMB Research in a note on Monday said it expects potentially wider losses at Suzhou in 3Q2023 due to depressed capacity utilisation, which coincided with plant closure during the Chinese New Year holiday.  

Nevertheless, CGS-CIMB said MPI has guided analysts that it expects the Suzhou plant to return to profitability in the next two- to three quarters, driven by recovery in the semiconductor industry demand and China’s economic reopening. 

The research house retained its “reduce” rating with a RM24.00 target price (TP), implying a 18 times 2024 price to earnings ratio (PER), one standarad deviation below the Malaysian semiconductor assembly and test sector’s five-year mean PER of 24 times.  

“We see an appreciation in the ringgit against the US$, delay in customers’ wafer replenishment and a prolonged worker shortage in Malaysia as key de-rating catalysts, while a faster-than-expected recovery in China’s economy, higher contribution from the automotive and industrial segments, growing contribution from newer platforms like silicon carbide (SiC) and gallium nitride (GaN) chips, and favourable forex movements are potential upside risks to our ‘reduce’ call,” it said.  

On Thursday last week, MPI reported that its net profit fell to RM18.33 million from RM85.32 million a year ago, weighed by lower demand in the consumer electronics market. 

Earnings per share slumped to 9.22 sen for 2QFY2023 from 43 sen for 2QFY2022, while revenue dropped 13.42% to RM526.42 million from RM608 million previously. 

The weaker quarterly performance resulted in a 57.47% contraction in net profit for the first six months of FY2023 to RM71.03 million, from RM167 million a year ago. Revenue was down 8.56% to RM1.09 billion, from RM1.19 billion. 

The outsourced semiconductor assembly and test firm warned that the challenging operating environment it is under will persist in the coming quarters, especially for its China operations, due to the overall weak demand in China and current geopolitical tensions. 

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