Investment Highlights

• We maintain our BUY recommendation on Malaysian Pacific Industries (MPI) with an unchanged forecast and fair value of RM59.50/share. Our valuation is pegged to an unchanged PE of 32x. We make no ESG adjustment to reflect our 3-star rating (Exhibit 3).

• MPI has entered into an agreement to invest in a new piece of land and set up a plant in the Suzhou Industrial Park Suxiang Corporation Zone. Under the agreement, the land size is approximately 67K square metres and usage term is expected to be 50 years. It is estimated to cost RMB22.40mil or RM14.81mil, which we believe will be funded by the group’s huge cash reserves.

• According to its Bursa filing, the new plant will provide assembly and test services for semiconductor and electric components. We believe that this is aimed at silicon carbiderelated (SiC) product expansion as guided by management in its recent analyst briefing. We have factored in the growth of SiC power product investments into our previous forecast, particularly in the automotive and industrial segments.

• In addition to the proposed investment, MPI has also completed its 2nd phase of level 2 expansion for Carsem Suzhou in Sep 2021, adding 4,400 square metres to the plant. The total floor space for Carsem Suzhou currently stands at 56K square meters, primarily processing radio frequency, micro leadframe package and flip chips to cater to the consumer market.

• Outlook: The group’s business remains strong, supported by industry trends, with global EV sales up 98% YoY and global cloud infrastructure services spend growing by 35% YoY. MPI continues to install more machines to support its expansion. It is also seeking more anchor customers, securing more guaranteed business in the future, and investing in R&D and Industry 4.0 to deliver the higher product quality and achieve better efficiencies.

• We remain upbeat on MPI, which is set to benefit from the expected strong growth in the EV space. The group’s positive prospects arise from: (i) its move to produce SiC and GaN power products with applications in EVs, servers, renewable energy and consumer gadgets; (ii) continuous effort to invest in automation for cost optimization; and (iii) its strong net cash position, which allows for strategic investments and M&A opportunities and greenfield expansion.

Source: AmInvest Research - 23 Dec 2021