PIE Industrial’s EMS segment to drive prospects

It expects orders under EMS activities to increase in the long run due to its fully built-up vertical integrated manufacturing facilities


MIDF Amanah Investment Bank Bhd (MIDF Research) maintained its ‘Neutral’ rating on PIE Industrial Bhd with a target price (TP) of RM1.98 as its earnings estimates remain unchanged.

The research house said the group’s core profit of RM20.3 million for the nine cumulative months ended Sept 30, 2020, came in below expectation and only accounted for 60% of the full-year estimate.

For the third quarter ended Sept 30 in calendar year 2020 (3QCY20), PIE Industrial’s profit fell to RM12.03 million from RM17.45 million a year ago, mostly due to decreasing orders received from existing customers for its products and services triggered by the impact of the pandemic.

PIE Industrial’s electronics manufacturing service (EMS) activities are anticipated to pick up in the long run.

“PIE Industrial expects orders under EMS activities to increase in the long run due to its fully built-up vertical integrated manufacturing facilities coupled with higher demands coming in from overseas customers as a beneficial result of the US-China trade war,” the MIDF Research report noted.

The EMS division contributed 46% year-on-year growth in revenue this quarter compared to the same quarter last year.

“With the division starting production at full capacity in 3QCY20, we view this as a new chapter for the group where we foresee the revenue contribution from the segment to continue to grow, supporting the financial performance of the group moving forward,” the research house said.

PIE Industrial’s quarterly revenue grew 36.6% to RM227.43 million from RM166.48 million in the previous corresponding quarter.

The group’s core net profit recorded an 11.7% quarter-on-quarter growth from RM8.6 million in 3QCY19, as the increase in revenue was partially offset against lower gain from foreign currency translation, as well as higher administrative and distribution expenses.

MIDF Research noted that PIE Industrial’s business outlook is clouded by the development on the Covid-19 front globally, possible disruption in the supply chains and wild fluctuations in foreign-exchange rates.

“We slashed our dividends estimate to zero on the assumption of cash prioritisation and a rating of ‘Neutral’ has been maintained as our TP is derived by pegging PIE Industrial’s unchanged financial year 2020 earnings per share of 8.79 sen to price-to-earnings ratio of 22.5 times (previously 13.7 times), which represents PIE Industrial’s two-year historical average,” said MIDF Research.

The research firm increased target valuation for the company is in view of a positive outlook on its EMS activities.

PIE Industrial’s net cash of RM141.9 million as of end-September will be able to assist the group to overcome any short-term headwinds, said MIDF Research.