MPI: Semiconductor Outlook Strengthens on AI Server Demand and Strategic Acquisition

A major investment bank has signaled a more optimistic outlook for a leading semiconductor firm, driven by robust demand in the AI server segment and a significant strategic acquisition. The firm’s earnings forecasts for FY26-FY28 have been substantially raised, reflecting higher sales assumptions across its automotive and AI server divisions. Consequently, the investment bank has upgraded its recommendation for the stock from “Sell” to “Hold” and increased the target price to RM33.00 per share.

Performance Review

Management maintains a cautiously optimistic stance on the business environment, noting a gradual recovery in the automotive sector, supported by sustained positive momentum in Asia, particularly China. Despite some continued softness in Europe due to weaker consumer demand and geopolitical uncertainties, the company has successfully gained market share in China’s highly competitive automotive market. The AI server segment, a major contributor, continues its strong growth, fueled by the demand for generative artificial intelligence, with shipments expected to ramp up in the coming quarters. By sales breakdown, the industrial segment remains the largest contributor at 47% (including 10% from AI servers), followed by automotive at 34%, consumer communications at 13%, and PC notebooks at 5%.

Strategic Growth Initiatives

A pivotal driver for the improved outlook is the proposed acquisition of Infineon’s plant in Nonthaburi, Thailand, valued at RM327.6 million. This deal is considered highly attractive as the plant is being acquired below book value (0.7x P/B) and boasts a prime location with additional idle land for future expansion. The acquisition is expected to broaden the firm’s product mix and create new revenue streams, while also strengthening its strategic relationship with key customer Infineon through a long-term supply agreement. The transaction is projected to conclude in 1H2026.

Future Outlook and Investment

The firm, backed by a robust net cash position of RM1.1 billion, plans to continue investing heavily in new technologies to capitalize on future growth opportunities. Key focus areas include electric vehicles, artificial intelligence, 5G testing, advanced packaging, and sensors. The company also remains active in pursuing merger and acquisition opportunities to further expand its footprint and capabilities.

Risks and Valuation

Despite the positive revisions, potential downside risks include weaker-than-expected loadings, persistent geopolitical tensions affecting economic growth and supply chains, and currency fluctuations. Following the improved business outlook, the investment bank has increased its target PE from 28x to 30x. This, combined with the earnings revision, led to the target price adjustment from RM27.20 to RM33.00, based on 30x CY26 earnings and a 3% ESG premium.