MPI- the turnaround may begin

Result Update

For QE30/6/2013, MPI reported a net profit of RM10.7 million- an improvement of nearly 5-fold over the immediate preceding quarter and a turnaround from a loss of 7.4 million in the same quarter last year. The improved bottom-line was achieved on the back of increased revenue which rose 14% q-o-q or 18% y-o-y to RM326 million. MPI's revenue for Asia, USA & Europe grew q-o-q by 26%, 5% & 3%. This plus favorable forex movement & cost control measures taken, led to higher profit.


Table: MPI's last 8 quarterly results


Chart 1: MPI's last 26 quarterly results

Outlook for the Tech sector

After many years of cost-cutting, Corporate America is expected to spend to upgrade its IT infrastructure. This is expected to lead to a spending boom for the Tech sector. The same outlook may apply to Europe and to a lesser extent to some part of Asia. This expected increase spending should lift all IT stocks, including MPI. For more, check out these two articles:

1. CREDIT SUISSE: Corporations Are About To Embark On A 4-YearTech Spending Boom; and 

2. Morgan Stanley: The Booming Info Tech Sector Isn't SlowingAnytime Soon

Valuation

As noted before, it is not meaningful to look at MPI's PE multiple as the company has been in & out of the red for the past two years. I better indication of the 'cheapness' of this stock is that it is now trading at a Price to Book of only 0.7 time (based on its current price of RM2.48 & NTA p.s. of RM3.78 as at 30/6/2013).

Technical Outlook

MPI has resting at the strong support of RM2.40 for the past 18 months. This means that all the weak shareholders (or, those who lost heart in the stock) had sold off while new shareholders (probably the majority shareholder, Quek) have bought in or increased their stake in the company. This has been happening in a lean picking period (a period of either loss-making or meager profits) and it could be a prelude to a bumper harvest ahead.


Chart 2: MPI's weekly chart as at Sept 2, 2013 (Source: Quickcharts)

Conclusion

Based on the return to profitability & 'undemanding' valuation, MPI could be a good stock for a recovery play.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, MPI.