MPI 3867

MPI – The worst is over?  

Price	RM 3.04
Market Cap	RM 642.25 mil

Business: Leading semiconductor packaging and services provider in Malaysia. Services offered include manufacturing, assembling and testing of ICs (integrated circuits).

MPI share price was under selling pressure after recent weak 2QFY12 result and rising concerns over Unisem’s loss-making 4Q results. Is the worst is over for MPI? I think there is one more bad quarter result to go however, share price always run ahead of fundamental changes. Therefore, this is the right time to start position on cyclical stock like MPI as its downside risk is limited. Here’s the reasoning;

1)      Global semiconductor industry is bottoming.

      According to SEMI, the semiconductor book to bill ratio has since recover from 0.71x to 0.95x in Jan 2012. (It has been climbing for 4 consecutive months.) To note, during financial crisis in 08/09, book to bill ratio has dropped to 0.47x, but I do not expect it to happen in near-term given the market recovery is in play. Hence, 2Q12 will see semiconductor industry to recover due to inventory restocking. MPI revenue is expected to show strong improvement in 2Q12 with utilization rate and margin to bottom out in 1Q12.

 (Source: SEMI)

2)      Valuation for MPI is at the trough now with limited downside risk.

 MPI is currently trading at 0.83x PB. The lowest PB for MPI is at 0.8x which only happened in year 1999.  Even during financial crisis 08/09, the lowest PB for MPI is at 1.1x. This suggests that the valuation is at the trough with sufficient safety of margin. By using 1.2x PB to conservatively derive the potential target price for MPI at RM4.39, it suggests a 43% upside with dividend yield of ~4%. Balance sheet is solid with only 0.2x net gearing.

3)      So, when is the best time to start position? Now is the time!

Based on analysis on MPI during 08/09 financial crisis, the worst quarter was 3QFY09 (Calendar year =1Q09) and the stock price bottomed out on 1 April 2009 and recovered as much as 50% in 3 months’ time. A similar trend is expected to happen in 2012 as the worst quarter will fall on 1Q12. Therefore, share price should bottom out before 1 April 2012. Hence, March is the best time to start accumulates the stock.Based on our analysis on MPI during 08/09 financial crisis, the worst quarter was 3QFY09 (Calendar year =1Q09) and the stock price is bottoming out on 1 April 2009 and recovery by 50% in 3 months time. We expect the similar trend to happen in 2012 as the worst quarter will fall on 1Q12. Therefore, share price should bottom out before 1 April 2012. Hence, March is the best time to start accumulates the stock.

Technical Analysis: MPI Can Rally to RM 4.50 in Near Term

MPI Daily Chart

Multiple Moving Average (MMA) indicator suggests that the short term MMA (blue) has moved above the long term MMA (red), signalling strong bullish support from traders. This is also the first time since May 2010 that the short term MMA has been above the long term MMA. This is a significant change in trend relationship and points the way to higher prices. Since the strong breakout in January 2010, MPI has retraced to the long term MMA which provides strong support. A move back above the psychologically critical RM 3.00 level has improved the technical outlook for MPI.

Fibonacci and MMA suggest there is a high potential for MPI to hit RM4.50 in near term. 

Posted in: Stock Picks