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This article first appeared in The Edge Financial Daily, on April 29, 2016.

 

Malaysian Pacific Industries Bhd
(April 28, RM7.15)
Downgrade to neutral with a lower target price (TP) of RM7.53:
We expect Malaysian Pacific Industries Bhd’s (MPI) growth momentum to slow down going forward, after taking into account our latest average ringgit/US dollar forecast of 3.80 (from 4.10) for next year. We estimate that every 1% appreciation in the ringgit against the US dollar may potentially erode MPI’s earnings by 4% to 5%, assuming all else is constant. Additionally, the outlook of the global

semiconductor industry is getting increasingly challenging, as regional competition intensifies while overall demand may decelerate amid global economic uncertainty.

On a positive note, MPI’s net cash pile remained sturdy, with its cash/debt closing at RM249.9 million/RM68.5 million respectively as of March. In addition, the group has accumulated treasury and trust shares of 20 million shares. These could imply the potential for more generous dividends going forward in the form of cash or share distribution. We forecast an appealing yield of 4.1% to 4.7% per annum, pegged on a payout ratio of 37% to 47%.

We trim our financial year 2016 (FY16) to FY18 forward earnings per share by 9% to 26% to take into account our latest 2016/17 ringgit/US dollar estimate of 4.00 to 3.80 (from 4.30 to 4.10), which, in our view, would be partly offset by slower average sales price erosion. Key risks include a further strengthening of the ringgit against the US dollar and potential global economic slowdown. This, in our view, would affect consumer spending on technology products.

With the foreign-exchange theme likely to dissipate in anticipation of a further strengthening of the ringgit as we move into 2017, we now peg a revised one-year forward price-earnings ratio of 12 times (from 15 times). This is to be in line with regional peers’ multiples. Our TP now stands at RM7.53 (from RM11.64). Given the limited upside, we downgrade our call to “neutral”. — RHB Research, April 27.

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