By Sherilyn Goh
Integrated circuit and semiconductor device maker Malaysian Pacific Industries Bhd (MPI) sees its call upgraded to “buy” by AllianceDBS Research, with an upward revision in target price to RM8.65 from RM7.71 previously, following news that its 70%-owned subsidiary Carsem Malaysia was granted pioneer status for the next 10 years.
“With the tax incentive and rising competitive advantage from the weaker ringgit, we believe MPI is in a relatively good position to sustain its sales and profitability despite the weak semi environment,” wrote AllianceDBS in a research note published today.
The granting of pioneer status comes with tax incentives, effectively lowering tax rate in the first quarter of financial year 2016 (1Q16) ended Sept 30, 2015 to 6%, compared with 18% in the preceding quarters.
The group attributed its results to stronger US dollar, focus on higher margin products and cost savings.
Following the announcement of its 1Q16 results on Nov 17, which saw 7% sequential sales decline, AllianceDBS expects flattish 2Q16 sales, as the industrial and Chinese smartphone segments remain soft.
According to Bursa filing, the group’s profit after tax grew 175% year-on-year to RM59.32 million, on the back of revenue which increased 18% year-on-year to RM386.65 million in 1Q16.
According to the research house, the average utilisation rate was at mid-80% in 1Q16, as compared with high-80% in previous quarters, mainly dragged by its Suzhou plant in China. This, it notes, is while Malaysia’s S-site plant remain well-utilised given the ramp-up of a new smartphone model.
“Overall, management is cautious on the semi outlook in the near term, but is optimistic that demand should improve for MPI in the second half of financial year 2016, on the back of new customer wins such as Bosch for its underutilised land grid array land in Suzhou,” it said.
The research house is raising its target price-book value multiple for MPI to 1.6 times from 1.5 times previously.
While slightly higher than current valuations of global mid-tier outsourced semiconductor assembly and test players, AllianceDBS premised its valuation upon the group’s high return on equity of 16%.
“Our target price is revised to RM8.65 per share, which implies 11.2 times FY16 price-earnings,” it noted.
At 11.47am today, MPI was trading 14 sen higher at RM7.85.
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