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Malaysian Pacific Industries Bhd
(March 13, RM6.28)

Maintain buy call with higher target price of RM7.69 from RM6.96: The recent weakness of the ringgit against the US dollar could help to propel MPI’s earnings growth come the release of its third-quarter financial year 2015 (3QFY15) results by end-April. 

The ringgit has averaged RM3.60 per US$1 year-to-date vis-à-vis the fourth quarter of calendar year 2014’s (4QCY14) RM3.37 (an increase of 6.8% quarter-on-quarter) and 1QCY14’s RM3.30 (an increase of 9.1% year-on-year). 

We estimate that every 1% depreciation of the ringgit against the US dollar could translate into a potential earnings upgrade of 3% to 4% for MPI, assuming all else remains constant. Our in-house 2015 US$/RM forecast currently stands at an average of 3.60.

We anticipate MPI’s revenue for 3QFY15 to register RM335 million to RM350 million after taking into account the current favourable foreign exchange environment, partly offset by the shorter working period for its Suzhou plant in China due to the festive season. 

We expect orders for its auto and industrial segments to pick up during the quarter after recording a marginal decline in orders in 2QFY15, as some of its customers were running down their inventory levels. 

On a side note, we do not discount the possibility of an increase in dividends (from a dividend per share [DPS] of 10 sen in 3QFY14) given the improving earnings outlook. 

We are currently forecasting a DPS of 11 sen to be declared during 3QFY15’s results announcement.

We upgrade our FY15 to FY17 earnings per share estimates by 2.8% to 5.1%, after taking into account our revised US$/RM assumption as well as tweaking our operating expenditure structure for housekeeping purposes. 

Key risks to our earnings estimates include strengthening of the ringgit against the greenback, higher raw material costs, and a potential slowdown in the semiconductor market should consumer spending tighten.

We continue to advocate investors accumulate the stock on MPI’s improving earnings visibility for the rest of 2015 and given its undemanding valuation vis-a-vis its peers. 

Maintain “buy”, with our target price upgraded to RM7.69 as we roll forward our valuation to FY16 based on an unchanged 15.8 times price-earnings ratio. — RHB Research Institute Sdn Bhd, March 13

Malaysian-Pacific_160315

 

This article first appeared in The Edge Financial Daily, on March 16, 2015.

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