Malaysian Pacific Industries Bhd (Feb 2, RM3.42)
Maintain underperform at RM3.48 with revised target price of RM2.79 (from RM2.55): We cut our FY12 ending June earnings forecast to reflect the lacklustre demand for 2012. We tweak our target price for housekeeping purposes while still applying a 60% discount to its five-year historical adjusted average price-to-book value (P/BV). We reiterate our “underperform” call given the downside risks.
Peter Yates, group managing director, hosted MPI’s 2QFY12 briefing on Tuesday. Key takeaways were: (i) the PC/laptop segment will continue to be a problem this quarter; (ii) the smartphone/tablet segment will drive growth; (iii) over 80% of production has now been converted to the high density line; (iv) Suzhou Phase 2 is now completed and has landed a new tenant; (v) MPI has secured a new smartphone customer, and (vi) cost-cutting measures helped to contain 2QFY12 losses.
There were no surprises during the briefing. Visibility is low as customers are holding back. Utilisation rates remain below 70% for the second straight quarter and we suspect will continue to do so in 3QFY12. Despite the inventory cutback and market talk of a bottoming of inventory days, inventory days in 4QFY11 are expected to remain elevated at 79.3, albeit down slightly from 81 currently. 3QFY12 revenue is expected to remain flat assuming the macroeconomic situation does not deteriorate and the company continues to manage costs. While 4QFY12 prospects look brighter, we remain cautious as stockpiles are still higher than 2008 levels and customers continue to guide for a moderate decline over the next two quarters.
MPI’s recent share price resurgence seems premature and downside risk outweighs the upside. Investors should avoid MPI and the general semiconductor industry until orders start to pick up and the macroeconomic environment improves. Switch to JCY International Bhd to take advantage of the hard disk drive recovery from the recent shortage caused by the Thai floods. — CIMB Research, Feb 2
This article appeared in The Edge Financial Daily, February 3, 2012.
Maintain underperform at RM3.48 with revised target price of RM2.79 (from RM2.55): We cut our FY12 ending June earnings forecast to reflect the lacklustre demand for 2012. We tweak our target price for housekeeping purposes while still applying a 60% discount to its five-year historical adjusted average price-to-book value (P/BV). We reiterate our “underperform” call given the downside risks.
Peter Yates, group managing director, hosted MPI’s 2QFY12 briefing on Tuesday. Key takeaways were: (i) the PC/laptop segment will continue to be a problem this quarter; (ii) the smartphone/tablet segment will drive growth; (iii) over 80% of production has now been converted to the high density line; (iv) Suzhou Phase 2 is now completed and has landed a new tenant; (v) MPI has secured a new smartphone customer, and (vi) cost-cutting measures helped to contain 2QFY12 losses.
There were no surprises during the briefing. Visibility is low as customers are holding back. Utilisation rates remain below 70% for the second straight quarter and we suspect will continue to do so in 3QFY12. Despite the inventory cutback and market talk of a bottoming of inventory days, inventory days in 4QFY11 are expected to remain elevated at 79.3, albeit down slightly from 81 currently. 3QFY12 revenue is expected to remain flat assuming the macroeconomic situation does not deteriorate and the company continues to manage costs. While 4QFY12 prospects look brighter, we remain cautious as stockpiles are still higher than 2008 levels and customers continue to guide for a moderate decline over the next two quarters.
MPI’s recent share price resurgence seems premature and downside risk outweighs the upside. Investors should avoid MPI and the general semiconductor industry until orders start to pick up and the macroeconomic environment improves. Switch to JCY International Bhd to take advantage of the hard disk drive recovery from the recent shortage caused by the Thai floods. — CIMB Research, Feb 2
This article appeared in The Edge Financial Daily, February 3, 2012.
