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Friday, February 22, 2019

Malaysian Pacific Industries - 1HFY19 reaps benefits of portfolio restructuring

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Investment Highlights

  • We maintain BUY on Malaysian Pacific Industries (MPI) with an unchanged fair value of RM13.79/share. Our valuation is based on an unchanged CY19F PE of 14x.
  • MPI’s 1HFY19 core net profit of RM81mil (+5.2% YoY) came in within our forecast and consensus estimates, accounting for 53% and 52% respectively. We keep our earnings projection unchanged.
  • MPI registered a higher revenue for 1HFY19 at RM811.9mil (+3.7% YoY). Higher sales in Asia (+10.5% YoY) and Europe (+1.6% YoY) helped offset softer demand from the US (-14.1% YoY) which was likely affected by the US-China trade war. We attribute the stronger sales in Asia to the increasing demand for automotive-related jobs such as copper clip packaging and sensor packaging.
  • Operationally, EBIT margin has improved 0.9ppt to 15.3% in 1HFY19 from 14.4% in the corresponding period, thanks to the portfolio rationalisation initiative which weeded out low-margin customers to focus its resources on higher margin businesses.
  • Moderating raw material prices coupled with a better product mix have played a part in improving operating margins. To a certain extent, we believe the company’s digitalisation initiative to adopt Industrial 4.0 in its facility may be starting to show early contribution towards cost savings.
  • Going forward, the company will continue to benefit from its exposure in the automotive segment which offers bright prospects, backed by rising global light vehicle sales and growth in semiconductor content per vehicle. Furthermore, MPI’s strong net cash position opens up opportunities for the group to acquire new technologies, particularly in the automotive space.
  • This comes in line with the group’s 5-year plan of achieving 50% of its revenue derived from the automotive segment. Currently, the automotive segment represents 30% of the group’s total revenue.
  • MPI is currently trading at a CY19F PE of 10.4x, below its 5-year average of 15x, while FY19F–FY21F dividend yield remains decent at 2%–3%.
Source: AmInvest Research - 22 Feb 2019

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