MPI : Suzhou riding on capacity expansion

Market Perform

Briefing Update

- While management expects 2QFY06/10 revenue to increase qoq, growth would likely be more modest vs. 1Q (+18% qoq). However, management expects 2Q net profit to grow sequentially on the back of: 1) higher overall utilisation rate; and 2) stronger contribution from higher-margin high-density packages.

- Management expects to boost its MLP capacity to 5m/day by end-FY10 from 4m/day currently given strong demand for its MLP packages arising from resilient demand for networking and handset chips in China. MPI Suzhou would be rolling out its higher-margin X3-MLP with high volume production by 3QFY10.

- While 1QFY10 utilisation rates for high-density packages of 60-70% appeared weaker than MLP (which was around 95% in 1QFY10), the company expects 2QFY10 utilisation rates to increase gradually as more customers begin to qualify these packages. According to management, gross margin of high-density packages are 17-20%-pts higher than low-density packages which are 15-30%.

- Although global chip sales registered seven consecutive months of gain on a mom basis after five months of decline beginning Oct 08, we are cognisant of potential weak chips demand in 1QCY10 (after a strong resurgence in 2Q-3QCY09 and sustained growth going into 4QCY09).

- Hence, no change to our forecasts and fair value of RM5.98/share for now. Maintain Market Perform.