MPI has just announced its results for QE31/12/2011. It was another bad quarter for MPI, with net loss of RM16 million- an increase of 52% over the net loss for the immediate preceding quarter, QE30/9/2011. The loss was attributed to a 11.5%-drop in turnover to RM279 million. This in turn was due to a drop in the demand across Asia (16%), Europe (9%) and the US (6%). In addition to declining sales, MPI was also hit by inventory correction.
This double whammy is not likely to recur in the current quarter. There are clear signs that the US economy is beginning to recover. This should lead to improve demand for many consumer electronic goods. As such, the demand for semiconductors should improve.
Table: MPI's last 8 quarterly results
Chart 1: MPI's last 20 quarterly results
Valuation
It is not meaningful to look at MPI's PE multiple as the company has been on a losing streak for the past two quarters. While Price to Book is also not be a useful indicator, it does give a sense of how much this stock has dropped & its potential for recovery. Based on yesterday's close of RM3.68, MPI is now trading at PB of 1 time only. Ignoring the crazy dotcom era, MPI had traded at PB as high as 5-5.5 times in 2002-2004. Can it return to this level again?
MPI is owned by Quek Leng Chan, a shrewd businessman which has grown many businesses to new heights & through 2-3 business cycles. I am confident that he & his management team will be able to do the same again for MPI. Which is why I post MPI as a long-term BUY in October 2011 (here).
Technical Outlook
MPI has recovered substantially from its low of RM2.60 in December. Its next resistance is at RM4.20-4.30 (the low in early 2009), while the immediate support is at RM3.40 & then at RM3.00.
Chart 2: MPI's monthly chart as at Jan 30, 2012 (Source: Tradesignum)
Conclusion
We should not be too perturbed by the poor results for the last quarter as this has probably been factored into the share price over the past few quarters. As such, I would rate MPI as a HOLD based on the expected turnaround in the semiconductor sector & the low share price (after a long decline).
HI Alex,
ReplyDeleteMflour come?
Agreed with you Alex. Semicon should recover soon after the year long correction. Electronics goods and auto (which use lots of semicon) should pick up this year after being hit by spare parts shortage due to tsunami and flood. On top of that the world big event such as Olympic, Euro Cup and Thomas Cup will help to boost up sales of electronics goods too. Time to load.
ReplyDeletethis is like buying based on hope and not relying on earnings data. How sure will we know that the recovery will come, is there any reliable indicators to help us make a more informed decision?
ReplyDeleteHi cheer
ReplyDeleteMflour come? Yes & No. It broke above its horizontal resistance at RM4.25- that's positive. However, I am wary of a stock moving higher after a generous split or "bonus issue" (which was carried out by way of a special dividend & a Rights Issue). I guess you can always try this play. Get in at the support at RM4.25 or RM4.00. If this stock break the 10-month SMA line (currently at RM3.90), it is game over. Get out & don't look back.
Hi khat
ReplyDeleteYou are right. Sometimes we have to take a stand. In stock market, big money is made by taking risk. Sometimes the risk is calculated. Sometimes it is reckless. The readers have to assess the risk that they are comfortable with.