Malaysian Pacific Industries Bhd (Jan 31, RM3.48)
Maintain sell at RM3.68 with a fair value of RM2: MPI reported sequentially weaker results as 2QFY12 revenue fell to RM279.2 million (-11.5% quarter-on-quarter [q-o-q], -24% year-on-year [y-o-y]) on anaemic demand from upstream players amid an industry-wide general inventory correction as the semiconductor industry suffered a disruption in its supply chain. During the quarter, fixed costs remained high owing to underutilisation of assets, which led to negative operating margins, which narrowed by 280 basis points (bps) q-o-q (-1,270 bps y-o-y) to -5.8% and in turn dragging down group bottom line to a loss of RM16.2 million.
Customers’ guidance for the upcoming quarter, being a seasonally weaker period, is: (i) Skyworks expects revenue to contract by 9% q-o-q to US$360 million (RM1.09 billion) as handset manufacturing tapers off after the holiday season; (ii) Maxim anticipates revenue to weaken to US$555 million to US$585 million, implying a 1% to 6% q-o-q decrease, due to softer demand from the end markets, especially PC notebooks and optical equipment used in communications infrastructure; and (iii) Linear Technology believes that it is at an inflection point and estimates revenue to go up by 4% to 8% q-o-q.
Last week, the International Monetary Fund (IMF) cut its global growth forecast by 0.7% and 0.6% for FY12 (4% to 3.3%) and FY13 (4.5% to 3.9%) on fears the European debt crisis may cause ripple effects globally. We think there might be a prolonged slowdown in the sector as consumers may be more cautious on spending. According to SEMI, the global industry association serving the manufacturing supply chains for the microelectronic, display and photovoltaic industries, the industry is still plagued by an oversupply of semiconductor equipment, with the book-to-bill ratio for worldwide semiconductor manufacturing equipment at 0.88 for the month of December. In addition, the Semiconductor Industry Association said November quarterly worldwide semiconductor sales contracted by 2.4% q-o-q and 3.1% y-o-y.
The worst is not over for the local semiconductor industry or MPI as the current run-up in its share price is unjustifiable. For now, we are maintaining our financial forecasts while reiterating our “sell” call with our fair value unchanged at RM20, based on 0.6 times FY12 price-to-net tangible assets. — OSK Research, Jan 31
This article appeared in The Edge Financial Daily, February 2, 2012.
Maintain sell at RM3.68 with a fair value of RM2: MPI reported sequentially weaker results as 2QFY12 revenue fell to RM279.2 million (-11.5% quarter-on-quarter [q-o-q], -24% year-on-year [y-o-y]) on anaemic demand from upstream players amid an industry-wide general inventory correction as the semiconductor industry suffered a disruption in its supply chain. During the quarter, fixed costs remained high owing to underutilisation of assets, which led to negative operating margins, which narrowed by 280 basis points (bps) q-o-q (-1,270 bps y-o-y) to -5.8% and in turn dragging down group bottom line to a loss of RM16.2 million.
Customers’ guidance for the upcoming quarter, being a seasonally weaker period, is: (i) Skyworks expects revenue to contract by 9% q-o-q to US$360 million (RM1.09 billion) as handset manufacturing tapers off after the holiday season; (ii) Maxim anticipates revenue to weaken to US$555 million to US$585 million, implying a 1% to 6% q-o-q decrease, due to softer demand from the end markets, especially PC notebooks and optical equipment used in communications infrastructure; and (iii) Linear Technology believes that it is at an inflection point and estimates revenue to go up by 4% to 8% q-o-q.
Last week, the International Monetary Fund (IMF) cut its global growth forecast by 0.7% and 0.6% for FY12 (4% to 3.3%) and FY13 (4.5% to 3.9%) on fears the European debt crisis may cause ripple effects globally. We think there might be a prolonged slowdown in the sector as consumers may be more cautious on spending. According to SEMI, the global industry association serving the manufacturing supply chains for the microelectronic, display and photovoltaic industries, the industry is still plagued by an oversupply of semiconductor equipment, with the book-to-bill ratio for worldwide semiconductor manufacturing equipment at 0.88 for the month of December. In addition, the Semiconductor Industry Association said November quarterly worldwide semiconductor sales contracted by 2.4% q-o-q and 3.1% y-o-y.
The worst is not over for the local semiconductor industry or MPI as the current run-up in its share price is unjustifiable. For now, we are maintaining our financial forecasts while reiterating our “sell” call with our fair value unchanged at RM20, based on 0.6 times FY12 price-to-net tangible assets. — OSK Research, Jan 31
This article appeared in The Edge Financial Daily, February 2, 2012.
