KUALA LUMPUR: Malaysian Pacific Industries Bhd's (MPI) results for the nine months ended March 31, 2024 (9MFY24) came in within expectations, accounting for 70 per cent and 76 per cent of Affin Hwang Capital and street estimates respectively.
Affin Hwang noted that MPI's core net profit jumped 40 per cent year-on-year (YoY) largely due to the losses incurred in the third quarter ended March 31, 2024 (3Q23).
This was a result of the low utilisation rates due to the global semiconductor inventory correction.
MPI reported a flat 9MFY24 revenue YoY.
"Notably, 9MFY24 earnings before interest, tax, depreciation and amortisation (Ebitda) margin was only marginally higher despite the weaker performance in 9MFY23 due to the lower operating leverage amidst the cycle downturn.
"That said, MPI has recorded sequential revenue improvement since its revenue bottomed out in 3Q23.
"The weaker ringgit vis-à-vis the US dollar has also aided revenue. Year-to-date, the ringgit has depreciated by four per cent," it said in a note.
Sequentially, Affin Hwang noted that while MPI's 3Q24 revenue was flat, core earnings were slightly lower.
The firm believes that this could have been due to the disposal of Dynacraft and some expenses related to it.
"That said, quarterly revenue should have been higher as Dynacraft used to contribute US$3 million to US$4 million per quarter.
"This also suggests that while the semiconductor inventory cycle has most likely bottomed, a recovery remains uneven," it said.
Affin Hwang added that MPI's automotive segment will likely only see a recovery towards the second half of calendar year 2024 (2HCY24) and this segment accounts for approximately 43 per cent of MPI's revenue.
This was likely mitigated by the improvement in the communication segment, lifting the profitability at its Suzhou operation which has been facing excess capacity.
Affin Hwang upgraded MPI's rating to "Buy" from "Hold" previously, with a revised 12-month target price of RM40.
The firm said this was due to inventory in the supply chain normalising and thus driving earnings delivery.
"We also see the potential of valuation re-rating with likely positive consensus earnings revisions taking place in 2HCY24.
"MPI makes a good proxy to the semiconductor upcycle given its broad exposure to the consumer, PC, automotive and industrial space," it noted.
Affin Hwang said key downside risks for MPI include a weaker-than-expected demand recovery, sharp decline in average selling prices and sudden appreciation of the ringgit.