MPI: Strategic Acquisition Boosts Outlook, Analyst Reiterates Buy Rating

Malaysian Pacific Industries (MPI) is set to acquire Infineon Technologies (Thailand) (IFTH) for USD77.9 million, a move that analysts at RHB view as strategically positive despite being neutral in the near term. This acquisition is expected to significantly enhance MPI’s manufacturing capabilities and future growth prospects.

Strategic Rationale

The acquisition is lauded for its ability to expand MPI’s semiconductor backend manufacturing footprint, secure a strategic partnership with Infineon (an existing customer), and diversify its regional operations. IFTH’s facility is particularly noted for its advanced memory test systems, which are anticipated to boost cost efficiencies in testing semiconductors and memory chips. Furthermore, the deal is expected to foster closer collaboration, potential long-term synergies through technology transfers, and scale efficiencies, ultimately strengthening customer relationships.

Financial Performance and Valuation of Acquired Entity

IFTH reported net assets of approximately THB3.55 billion (c.MYR470.7 million) for FY24 (September). The company posted a net loss of THB57 million (c.MYR7.6 million) in FY24, primarily attributed to adverse foreign exchange effects, compared to a net profit of THB58 million (c.MYR7.7 million) in FY23. RHB considers the acquisition valuation, at approximately 0.7x price-to-book (P/BV) based on FY24 net assets, as undemanding, noting that establishing new facilities would likely be more time-consuming and expensive. The bank advises against using IFTH’s FY23 P/E of 42x as a valuation benchmark due to prevailing semiconductor down-cycle conditions.

Future Outlook and Recommendation

While the deal is not expected to have an immediate material financial impact on MPI’s forecasts and does not require shareholder approval, it is projected to be accretive over the medium term post-integration. The transaction is slated for completion by the fourth quarter of fiscal year 2026. Consequently, RHB has raised its target price for MPI to MYR35, up from MYR30.50, implying a 22.6% upside from the last traded price of MYR28.50. The new target price is based on a rolled-forward valuation base year to CY26F, pegged to an unchanged 30x P/E (at +1.5 standard deviation from its five-year mean), and includes a 2% ESG premium, reflecting MPI’s strong ESG score of 3.1. RHB maintains a BUY recommendation on the stock.

Key Risks Identified

Key downside risks identified include slower-than-expected orders, the potential loss of a major customer, technology obsolescence, and unfavourable foreign exchange movements.