Tuesday 19 Mar 2024
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KUALA LUMPUR (March 15): Analysts and fund managers said on Tuesday that Malaysian Pacific Industries Bhd's (MPI) valuation is attractive after plunging 41.61% to RM29.78 from its peak of RM51 on Dec 1, 2021, as they expect the strong earnings growth momentum of the company to likely continue.

TA Securities analyst Wilson Loo said he views MPI's valuation as undemanding at current levels as it is trading at 15.6 times projected earnings for the financial year ending June 30, 2023 (FY23).

"I currently have a 'buy' recommendation on the stock with a target price (TP) of RM57.10," he told The Edge.

Barring disruptions from protracted pandemic and geopolitical tensions, he expects MPI to continue with its growth momentum, and projects the company hitting new records in FY22/FY23 with earnings growth of 20.1%/10.7%.

According to him, the key drivers include MPI's focus on the high-barriers-to-entry automotive segment as the group seeks to capitalise on the long-term trend towards vehicle electrification, accompanied by growing semiconductor content per vehicle.

For the sector as a whole, Loo sees the growth trajectory for chips intact, fuelled by ongoing acceleration in digitalisation and proliferation of secular technology trends like 5G, artificial intelligence, cloud computing, the Internet of Things, robotics, and vehicle electrification.

Meanwhile, Kenanga Research analyst Samuel Tan said in terms of valuation, a lot of tech stocks are now trading below their five-year average price-earnings ratios (PERs).

"From this standpoint, they are starting to look attractive already. MPI, in particular, is trading near its five-year average PER of 17.8 times. It is actually quite low," he told The Edge.

He still has a "buy" call for MPI with a TP of RM48.10.

"MPI is still one of my favourite tech stocks because of its growth prospects. Historically, its quarter-on-quarter earnings growth is one of the best in the industry," he said.

Going forward, he is confident that MPI's year-on-year earnings growth momentum will continue, underpinned by the demand in data centres, electric vehicles (EVs), automotive and some selected 5G base stations.

"If you look at the tech space, the work-from-home trend for smartphones and laptops is cooling off a bit, but what will be driving the tech space is the data centres, EVs, automotive and some selected 5G base stations that MPI is involved in," he said.

Overall, he opines that tech stocks' earnings growth is likely to continue, but he noted that the market needs to adjust to the fact that the quantum of growth will not be as large as compared with in 2019 to 2021.

He also noted that while the year-on-year earnings growth will continue, the big jump in growth is unlikely to sustain.

Areca Capital Sdn Bhd chief executive officer Danny Wong also opines that most tech stocks (including MPI) in Malaysia are very attractive at this moment for long-term play.

According to him, many tech counters with good fundamentals have seen their PERs drop to 20 times from 40 to 60 times at peak.

"Most of their profits in the past two years [have been] on [a] rising trend. If you look at MPI's financial performances, for the past 12 quarters, its [profits have also been] on the rise," he said, adding that some of them are able to maintain a decent margin of about 14%.

He expects most semiconductor players', including MPI's, earnings growth to continue amid the high demand in chips due to chip shortages and trade war.

He also noted most Malaysian outsourced semiconductor assembly and test (OSAT) players have strong order books now to sustain their double-digit earnings growth.

Last month, MPI said its net profit for the second quarter ended Dec 31, 2021 rose 27.27% to RM85.32 million from RM67.04 million a year ago, underpinned by its revenue, which rose 25.63% to RM608.01 million from RM483.94 million.

For the cumulative first half ended Dec 31, 2021, the group's net profit also grew 36.5% to RM167 million from RM122.35 million a year earlier, supported by its revenue that increased by 28.99% to RM1.19 billion from RM924.52 million.

"The semiconductor industry continues to show resilience and growth in spite of the challenging operating environment due to manpower limitations, supply chain disruptions, rising inflation and Covid-19 pandemic.

"The group will continue to focus on its business strategies and operational efficiencies to ensure sustainability and strengthen its fundamentals. Barring any unforeseen circumstances, the board expects the group's performance for FY22 to be satisfactory," MPI said.

For FY21, MPI's net profit surged 77.67% to RM271.82 million from RM152.99 million a year ago as its revenue climbed 27.09% to RM1.99 billion from RM1.56 billion.

MPI closed RM1.32 or 4.24% lower at RM29.78 on Tuesday, valuing the group at RM6.53 billion. Year to date, the counter has tumbled 39.67%.

Edited ByLam Jian Wyn
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