Malaysian Pacific Industries Bhd
(Nov 13, RM5.03)
Maintain “hold” with target price (TP) of RM5.45: Quarter-on-quarter revenue growth of 1.8% in the first quarter of financial year 2015 (1QFY15) was below Malaysian Pacific Industries Bhd’s (MPI) guidance of mid single-digit growth.

This was likely attributed to slower sales from a few key customers which reported weaker results. MPI might also be affected by ongoing inventory adjustments in the Samsung supply chain.

The company has been paring down debt, and its balance sheet is in net cash position now. Hence, MPI declared a higher interim dividend of 7 sen per share (compared with 5 sen last year).

A few key customers have guided for weaker demand in the fourth quarter of 2014 (4Q14) and generally expect inventory adjustments in the supply chain to be completed by 1Q15.

MPI does not have wafer bumping or wafer level chip scale packaging capabilities that are currently seeing healthy demand.

Despite the near-term weakness, MPI is on track to deliver better earnings growth in FY15 to FY17, underpinned by new product lines, such as the land grid and fine pitch ball grid array. Also, the recent legal settlement with Amkor Technology should open up new business opportunities.

Given the near-term weakness, we lowered the target valuation for MPI to 1.4 times FY15 book value (previously 1.5 times) and derived a TP of RM5.45 (with 10% return on equity).

This is consistent with global peers valuation in the semi-conductor assembly and test industry. — Alliance DBS Research, Nov 13

This article first appeared in The Edge Financial Daily, on November 14, 2014.