KUALA LUMPUR (Jan 26): CGS International has asked investors to hold on to Malaysian Pacific Industries Bhd (MPI) (KL:MPI) shares as it turned positive on growing demand for the company’s AI serve products, with revenue contribution from the segment doubling.
CGS was the sole sell call on the stock before the upgrade, which has five other holds and two buys.
“MPI is well positioned to capitalise on growth in AI servers, with the segment’s revenue contribution projected to double to 20% by end-FY2026 from 10% in FY2025. AI-related products currently account for around 20% of MPI’s industrial revenue,” CGS said in a note on Monday (Jan 26).
MPI has increased its AI server production lines from 17 to 28 to meet growing demand from key customers. With multiple AI server product generations in production, the risk of obsolescence is expected to be low over the next 12–18 months, it said.
The research house also expects MPI to benefit from stabilising global automotive markets and higher order visibility from key customers.
Following a better outlook, CGS raised MPI’s FY2026–FY2027 earnings forecasts by 34.7%–33.3% and lifted its target price to RM35.90, up RM21, one of the highest for the company. The valuation is based on 31 multiples of FY2027 earnings, above its five-year historical average.
CGS said the higher valuation is justified by MPI’s strong projected earnings growth of 21.6% per year from FY2025 to FY2028 and its position as Malaysia’s only listed outsourced semiconductor assembly and test (Osat) company with direct exposure to the global AI trend.
MPI is one of the most efficient Osat companies in Malaysia at generating profits from shareholders’ funds with an 8.4% return on equity (ROE) — second only to Inari Ametron Bhd (KL:INARI) which posted an ROE of 8.9% and well ahead of Unisem (M) Bhd (KL:UNISEM) with an ROE of 1.9%, according to AskEdge data.
Meanwhile, CGS noted that MPI’s acquisition of Infineon Technologies’ manufacturing facility in Thailand for US$77.9 million, announced in September 2025, is progressing as planned, with consolidation expected to be completed by end-3QFY2026.
“While earnings accretion is only likely from FY2027, the acquisition is seen as strategically positive over the longer term due to its focus on non-volatile memory applications, exposure to accelerating global memory demand, and expansion potential from surrounding prime freehold land,” the house said in a note on Monday.
CGS sees higher-than-expected AI server demand, strong recovery in global automotive semiconductors and a stronger US dollar as potential upsides. Downside risks include weak global industrial demand, challenges integrating Thai operations and a weaker US dollar affecting earnings.
MPI’s share price was down 1.69% to RM32.56 earlier, valuing the company at RM6.49 billion.