MPI: fairly valued? (part 2)

forecast P&L by TA Research

pls read (here) to understand more about semiconductor industry ~~
let's get straight to the point

STRENGTHS & OPPORTUNITIES

Growing Automotive Segment

The global automotive semiconductor market is expected grow at a CAGR of 6.4% from 2017 to 2022. MPI is well prepared to grow its Automotive contribution from 24% of group revenue in FY16 to 50% over the next 2-4 years. Well positioned, MPI already has existing coverage of 7 out of the top 10 automotive suppliers (TA Research). MPI mentioned that leading Automotive technologies that are used for safety features have  passed the stringent qualification stage and will see more meaningful earnings fruition in the coming quarters (Kenanga Research). Exposure to Automotive is good due to high barriers of entry and stable recurring income.

Completion of Automation

According TA Research on 20 Apr 2017, MPI has completed its investments in vision inspection equipment. However, immediate cost savings are unlikely to be realised, as the 519 workers are redirected to different roles to support expansion plans. 4QFY17 capex is expected to be minimal.

Global Leader in MLP

MPI is among the top producers of micro leadframe package  in the world. To grab more market share, MPI spending a lot in CAPEX and R&D to improve the features of its MLP as well as increased production efficiency through reducing floor space and headcount, and shortening assembly cycle time.

Exposure to Stable Automotive & Industrial segments

MPI has relatively larger exposure to the automotive and industrial segments as compared to its peers, growth in these segments is typically more stable over time because of longer product life cycles.

Margin Improvement

MPI has been targeting high-margin portfolios for leaded high-density packages, MLP, and test

services which contribute around 85% of sales.

Potential M&A 

MPI is actively looking for automotive related acquisition targets to acquire technologies to expand its existing capabilities, which is in line with its plans to grow automotive segment. With net cash of RM419.7m, M&A related activities can be done easily.

Beneficiary of Depreciating Ringgit 

Benefiting from stronger USD, although MPI typically hedges 50% of its net USD exposure 12 months forward. Sales are mainly denominated in USD, but only 50-60% of costs (mainly raw materials) are denominated in USD. 

Source: AllianceDBS Research

WEAKNESSES & THREATS

Cyclical Nature of Smartphones & Tablets market

A major slowdown in the smartphones sales (possibly due to high market penetration), will hurt MPI, contribution from the smartphone segment is still significant at the moment (around 40%)

Sharp Depreciation of USD (which is unlikely)

Depreciation of the USD would affect its earnings as sales are mainly denominated in USD

Global semiconductor outlook

MPI is a general OSAT player but with a more diverse customer base, it does not have excessive exposure to a single large customer. As such, its fortunes are generally tied to the outlook for global semiconductor sales. Its price and valuation are affected by the performance of other listed OSAT players, which are mostly based in Taiwan (ermm, im not familiar with taiwan market).

Source: AllianceDBS Research

for reference only, info outdated, cant get the latest at the moment

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source: http://www.malaysiastock.biz

Profit increased substantially over the last 4 years in tandem with consistent growth of revenue. Profit margin has been improving over the years. High ROIC & ROE, high profit margin and is expected to improve further due to larger exposure to automotive and value added products, cash position is superb and dont have any long term borrowings as per Q3 report, with net cash of RM419.7m, acquisition related activities can be done easily. MPI is now trading at the acceptable EBIT multiple of 8.34 and P/E of 12.91.
According to projected earnings by TA Research, P/E of MPI for FY17=12.15, FY18=9.89, which is very attractive if and only if the earnings can be achieved :)

In a nutshell, MPI is expected to grow with in tandem with the recovery of semiconductor industry. Larger exposure to automotive is good due to high barriers of entry and stable recurring income, which can offset the cyclical nature of communication sector and decreasing demand in PC. Any automotive related acquisition would be great to boost its earnings to the next level. I will monitor closely on its automotive's revenue contribution as it is critical to its future growth. To me, the downside risk is limited, and im willing to buy more during weakness :)



Disclaimer: it is not a buying recommendation, your money, your decision

MPI : Identifying Market Demand&Opportunities (part 1)

I am obliged to  tell/warn u that this post is mainly about facts & figures regarding semiconductor industry and key segments review of MPI, u may get bored easily if u r not interested :)

for those interested, pls have a look on A Quick Review on MPI Q3 Result before continue

Industry Review

Economic instability, inventory excess, weak demand for PC’s, tablets, and mobile products in the past three years has caused slow growth for the semiconductor industry.

source: http://www.gartner.com/newsroom/id/3385417

Fortunately, the worst appears to be over :) The Semiconductor Industry Association announced worldwide sales of semiconductors Jan 2017 increased 13.9% as compared to the Jan 2016. Jan marked the global market’s largest yoy growth since Nov 2010. Yoy sales increased substantially across all regions: China (20.5%), the Americas (13.3%), Japan (12.3%), Asia Pacific/All Other (11.0%), and Europe (4.8%). Following the industry’s highest-ever revenue in 2016, the global market is well-positioned for a strong start to 2017 (Mar, 2017).

Source: https://www.semiconductors.org/news/2017/03/06/global_sales_report_2015/january_semiconductor_sales_up_14_percent_compared_to_last_year/

Worldwide semiconductor revenue is estimated to total $386 billion in 2017, an increase of 12.3% from 2016, according to Gartner (April, 2017).

Source: http://www.gartner.com/newsroom/id/3678417

Operating Segments Review

MPI's principal activities are manufacturing, assembling, testing and sale of integrated circuits, semiconductor devices, electronic components and leadframes. It is operating in 4 major segments, namely consumer/ communications, industrial, automotive and PC/notebook segments. Its product offerings within the communications (RF PA, RF switches, Sensors, TVS), infrastructure (RF switches, Low noise amplifiers, Clocks), industrial (PMIC, Amplifiers, iSolators) and automotive (TPMS, LED driver, Airbag control) segment. Several of its top ten customers are leaders within the IoT and automotive space (July 2015, TA Securities).

Consumer/ Communications Segment  (smartphones,tablets, feature phone)

Continual Growth of Global Smartphone Market

Global Smartphone Sales is expected to grow 7% in 2017, improved from 2% annual growth rate in 2016, thanks to improved economic situations in selected regions / countries, as well as expected hardware innovations which would trigger strong replacement sales. Asia Pacific remains as the biggest region, followed by North America. Africa Middle East will maintain the highest growth rate through 2022. The three largest smartphone countries by far in the next five years will be China, India and the USA, due to their massive populations (Mar, 2017).

source: https://www.strategyanalytics.com/strategy-analytics/blogs/devices/smartphones/smart-phones/2017/03/10/global-smartphone-sales-to-grow-7-yoy-in-2017#.WPq1gtKGOMp

According MAW, the global smartphone market is now expected to witness substantial growth over the forecast period owing to advancements in the electronic, telecommunication, and m-Commerce industry as well as the increasing penetration of the Chinese smartphone industry. Overall, the global smartphone market is projected to register a healthy CAGR of 7.9% in terms of value and 5.8% in terms of volume during the forecast period 2016-2024 (apr, 2017).

source: https://mobilemarketingwatch.com/theres-no-slowing-global-smartphone-growth-71535/

MPI is benefiting from the growth of global smartphone sales. Despite MPI is trying hard to shift its focus and operation to automotive segment, due to cyclical nature of smartphones, contribution from the smartphone segment is still significant at the moment (around 40%). 

PC/Notebook Segment

Global PC shipments fell 2.4% in Q1 2017, 10th quarter of decline in a row (April, 2017).

source: https://venturebeat.com/2017/04/11/gartner-global-pc-shipments-fell-2-4-in-q1-2017-10th-quarter-of-decline-in-a-row/

Revenues from the PC segments should continue to fall in tandem with the structural decline in end-demand (source: AllianceDBS Research). Contribution from PC segment is considered great if managed to maintain or only fall marginally over the years (not gonna talk much as i think PC industry is dying).

Automotive Segment

The future of the global automotive semiconductor market looks good with opportunities in the passenger car and commercial vehicle segments. The global automotive semiconductor market is expected to reach an estimated $45.9 billion by 2022 and it is forecast to grow at a CAGR of 6.4% from 2017 to 2022. The major drivers of growth for this market are increasing vehicle production, increasing semiconductor content per vehicle, growing demand for advanced vehicle safety and comfort systems, and growing government regulations regarding CO2 emissions (Apr, 2017).

source :http://finance.yahoo.com/news/growth-opportunities-global-automotive-semiconductor-221600855.html

MPI plans to grow its automotive contribution from 24% of group revenue in FY16 to 50% over the next 2-4 years (TA Research). Strategy to grow the automotive sales contribution will reduce the earnings volatility in the communication, Automotive is typically more stable over time because of longer product life cycles (AllianceDBS Research). Among products currently produced include tyre pressure monitors, proximity sensors and airbags (TA Research).

According to Kenanga Research, MPI sales will be underpinned by the increasing number of new product introductions in Automotive, MPI mentioned that leading Automotive technologies that are used for safety features (such as advanced package for pressures, magnetic, acceleration sensors), have already passed the stringent qualification stage and will see more meaningful earnings fruition in the coming quarters.

According to CIMB Research, MPI's new airbag sensor production is gaining traction despite having only started production in the past 4-6 months. MPI is the single source supplier of the sensor for a European automaker and has shipped about 6-7m units of the airbag sensor to this client since beginning production at end-2016.  

In short, strategy to focus on automotive sector is brilliant due to its high barriers of entry and stable recurring income, which can offset the cyclical nature of communication sector and decreasing demand in PC. 

Industrial Segment

The global market for industrial semiconductor is projected to reach US$60 billion by 2022, driven by growing trend towards digital manufacturing,  robust investment in industrial automation technologies and the growing role played by electronics in developing intelligent automation solutions.

take some time to read full article at http://www.strategyr.com/pressMCP-7918.asp to understand the overall industrial semiconductor market. 

Industrial semiconductors are used in several applications, including manufacturing and process automation, power and energy, medical, test and measurement, building and home control, and military and civil aerospace.

source: http://marketrealist.com/2015/12/will-drive-growth-industrial-semiconductor-market/

“MPI is focusing on growing its industrial earnings as industrial markets for semiconductors are projected to grow 8.1% annually over the next four years,” this is mentioned in CIMB Research on 25 July 2016. Not much info I can get from AR or research report regarding its industrial segment, but industrial segment remains quite stable over the years (21%-24% of the sales), I can only assume this segment should grow consistently over the years.

I will talk about Capex expenditure, SWOT, financial ratio and forecast P&L if time allows~~

朋友问：花这么多时间研究一间公司，很赚很多钱的哦？

我答：不肯定，至少跌的时候我不会怕 :)

Disclaimer: it isn't a buying recommendation, your money, your decision

A Quick Review on MPI Q3 Result

Revenue rose 12%, mainly due to higher contributions from Asia, US and Europe segments which climbed 7%, 28% and 10% respectively yoy. Gross profit and profit margin improved impressively as the cost of sales is well managed. Operating expenses are increased probably due to R&D. Other operating expenses increased substantially due to forex loss. Prior years' deferred tax resulted in big gap in taxation.

Prospects

The Board anticipates the industry to grow moderately in the coming quarters. Barring any unforeseen circumstances, the Board expected the performance of the Group to be satisfactory for the financial year ending 30 June 2017 (extracted from Q3 report).

Technical Outlook

MPI is now trading at the PE of 12.73, this is considered quite "cheap" in tech sector. MPI had surged 50% since the released of Q2 result, i managed to grab some at 10.82 during "promotion" last week. MPI is now trading at range of 10.75-12, immediate resistance at 12, i will add a little if it manages to break the resistance with high volume, but definitely not tomorrow, from what i learned from past experiences, a stock will normally close up sharply in tandem with the satisfactory result released the next day, but it could drop on following day because of profit taking.

i will write a detailed analysis on MPI and market outlook if time allows~~



Disclaimer: it isn't a buying recommendation, your money, your decision

Prolexus - momentum investing or speculating?

PRLEXUS draws my attention after it crossed and closed above 200 days SMA on 7 april.

it had been falling down before the released of the disappointed 1QFY17  result, from 1.66 to 1.36

afterwards, it had been trading between 1.36 - 1.47 range even though the 2QFY17  result reported net profit rose 9% yoy. After a month of waiting, it successfully broke the strong resistance of 1.47 & 1.50 yesterday with volume, im now waiting for it to pull back to add more

http://www.malaysiastock.biz

Revenue, net profit & profit margin increasing consistently year after year

High ROIC & ROE, net cash company, trading at PE of 10 & EBIT multiple of 4.73

Company Performance

Prolexus Bhd’s 1QFY17 net profit dropped16.7% yoy to RM6.4 m, mainly due to slower sales and probably the impact of minimum wages (from ww.wsinchew.com.my).

Fortunately, the performance rebounded as 2QFY17  result reported net profit increased 9% yoy mainly on higher contribution from the group’s apparel division

Apparel Segment -let’s just focus on Apparel since it accounting for 97% of the revenue

Apparels Manufacturing Business Unit

Prolexus Group has over the years established itself as one of the reputable garments manufacturer for the internationally renowned brands.

What are these renowned brands? Namely  Nike, Oshkosh, Under Armour, ASICS, Gear for Sports, Champion, Fila, KRU, Disney, Umbro, Saks Inc, Parisian.

It has 3 manufacturing plants located in Malaysia and China to serve customer requirement. Prolexus is a garment designing and manufacturing service provider. Company products are exported to international markets which comprises of North American, European Union, Australia and Asia.

Apparels Retailing Business Unit

Prolexus has its own brands under Be Elementz and Bixiz Kids.

source:http://www.prolexus.com.my

Strengths & Opportunities

Profit margin

Gross margin held relatively steady at 19.2% (19.5% in 1HFY16). This was in spite of the full effect of higher minimum wage impact. Profit margin are expected to remain stable for FY17, given the cost-pass-through nature of Prolexus’ contracts.

New expansions

Meanwhile, Prolexus’ exciting double plant expansion remains on track to be completed in FY18. New Vietnam plant are anticitaped to commence operations in 1QFY18. It will initially enlarge existing output by 30%, with the potential to double existing capacity. Meanwhile, its Kluang fabric mill is scheduled to begin operations in 2QFY18. The fabric mill will enhance margins with cheaper knitted fabric input produced in-house. However, for the interim initial start-up costs and underutilisation of capacity are expected to initially weigh on margins (source: AmInvestment Bank Research)

Beneficiary of depreciating ringgit 

According to its FY16 annual report, 97% of Prolexus’s FY16 revenue is contributed from exports to foreign countries, out of which the exports to US alone accounted for 55.5% of its revenue, whereas revenue from Malaysia accounts for merely 2.5%. Therefore, should ringgit continue to weaken, Prolexus will be rewarded with increasing foreign export demands as well as gains from foreign currency translation.

Source:http://aspire.sharesinv.com/38088/prolexus-slow-and-steady-wins-the-race/

Increasing demand for active wear

The growing demand for active wear around the world owing to increasing health awareness may attract new business opportunities to Prlexus 

source:http://www.businesswire.com/news/home/20160831005048/en/Global-Sports-Fitness-Wear-Market-Witness-Growth

Weaknesses & Threats 

90% of the group’s total sales are attributed to its key customers

About 65% of its sales for the year ended July 31, 2015 (FY15) were from Nike and another 25% were from Under Armour.

Source: http://www.theedgemarkets.com/my/article/prolexus%E2%80%99-vietnam-expansion-plans-boost-its-production-capacity

source: http://www.sinchew.com.my/node/1599628/推行各种扩充计划．宝翔前景看俏

Revenue projection are lowered given the new development with Nike amid heightened competition from other brands such as Adidas and Under Armour (source: AmInvestment Bank Research).

Global economic downturn, geopolitical risks, intense competition that would be slowing down the business of its key customers, which in turn decreasing the orders

let's see who is the one that push up the price recently

EPF and Manulife are buying!!

Prlexus's products

Disclaimer: it isn't a buying recommendation, your money, your decision

GKENT - Patiently waiting

source: http://www.malaysiastock.biz

Top line and bottom line of GKENT have been growing consistently, what's more surprising is that net profit doubled as compared to FY 16. I have mentioned in my last article Brief Analysis on Market Outlook & Construction Stocks (GGGE that i was keep buying and indeed i did it so right

the price had been stagnant for 3 months since dec 2016, the quarter result was released on 20 march and the closing of that day was 3.23

the price broke the strong resistance of 3.15 the next day, and keep breaking new high everyday, the closing price on 7 april was 4.22, gain of at least 23% if one bought it before quarter result

is Gkent fully valued at current price?

Gkent is very attractive if u look at ROE, profit margin, cash on hand

but one may think PE of 15.63 is quite expensive

however, investing isnt about looking at the past, i am expecting at least 50% growth in terms of EPS because FY18 will be including the revenue from LRT 3

am i being over optimistic? the EPS FY 17 increased 103% as compared to FY16, the management prove that they can nail it over the years

extracted from AR 2016

The engineering division contributed 79% of the top-line to the tune of RM471 million and is the main growth driver for FYE2017. The metering division also saw higher revenue amounting to RM128 million which makes up 21% of the topline for FYE2017 (extracted from qtr report).

Orderbook is vital to a a construction company, and with FY17 job wins at RM1.1bn, GKent’s orderbook stands at RM6.2bn. This translates to a superior cover ratio of 10.4x on FY17 construction revenue, one of the highest in construction sector

with the RM6.2bn orderbook on hand,

let's assume 6.2bn to be completed within 5 years=1.24b revenue per year

which is more than double of revenue of FY17 598,965 without taking water metering division which constitutes 19% revenue for the FY17 into account

so i am considered quite conservative in anticipating the EPS to grow 50% yoy

Eyeing to grow orderbook further

GKent is keen to participate in the system works for rail projects such as the East Coast Rail Link, Southern Double Track and High Speed Rail. Apart from that, it has also tendered for a water treatment plant job (RM200m) where it is going against 2 other contenders.

Source: Hong Leong Investment Bank Research

Extra info

Gkent is planning a 2-to-3 share split and investors love this kind of corporate exercise which can make the stock ''cheaper'' and affordable, and possibly driving the price up further

Technical outlook

Gkent is very bullish, trending updward since the released of quarter result, immediate resistance at 4.42, the stochastic and RSI indicators shown Gkent is overbought, for those interested, can try to catch around 4 on weakness

my 1st batch has earned  177% gain, after averaging up all the way before quarter result and it even triggered the max weightage set(20%) of my portfolio, here is my latest average price & gain

it's worth to wait

Disclaimer: it isn't a buying recommendation, your money, your decision