This article first appeared in The Edge Financial Daily on August 27, 2018

Malaysian Pacific Industries Bhd
(Aug 24, RM11.80)
Maintain buy with a higher fair value (FV) of RM13.79: We maintain “buy” on Malaysian Pacific Industries Bhd (MPI), with a higher FV of RM13.79 per share (previously RM11.42 per share), based on a calendar year 2019 forward (CY19F) price-earnings ratio (PER) of 14 times (rolled forward from financial year 2019 [FY19F]). We have adjusted our FY19 to FY20 forecasts upwards by 1% for housekeeping reasons.

MPI’s FY18 core net profit of RM127.7 million (-30% year-on-year [y-o-y]) missed our and consensus estimates by 6% and 8% respectively, largely due to higher-than-expected material costs.

MPI’s fourth quarter of FY18 (4QFY18) core net profit (stripping out foreign exchange gains/losses) climbed 13% quarter-on-quarter (q-o-q) to RM26.5 million, but was down 42.9% y-o-y. This was due to an unfavourable US dollar during the previous three quarters.

We believe the q-o-q jump in 4QFY18 net profit was due to the strengthening of the US dollar against the ringgit, which traded in the region of four in the quarter versus 3.89 in the previous quarter.

On the revenue front, MPI registered a higher revenue for 4QFY18 (+7.3% q-o-q; +1% y-o-y), while FY18 revenue was flattish. Higher sales within the Asia region (+4.2% y-o-y) were largely offset by softer demand from the US (-6.3% y-o-y) and Europe (-5.6% y-o-y).

Moving forward, the company’s exposure to the automotive segment offers bright prospects, backed by rising global light vehicle sales and growth in semiconductor content in automobiles.

Furthermore, MPI’s strong net cash position is opening up opportunities for the group to acquire new technologies, particularly in the automotive space. This comes in line with the group’s five-year plan of achieving 50% of its revenue being derived from the automotive segment. Currently, the automotive segment represents 25% of total group revenue.

In addition, MPI’s revenue is denominated in US dollars, while only about half of its costs are in US dollars. We understand that MPI has only hedged about 38% of its US dollar exposure. Therefore, the group is a net beneficiary of a strengthening US dollar.

MPI is currently trading at a CY19F PER of 12 times, below its five-year average of 15 times, while FY19 to FY21 forecast dividend yields remain decent at 2% to 3%. — AmInvestment Bank, Aug 24