PIE’s FY22 results met expectations thanks to a stronger 4Q and higher ASP. Core net profit climbed 16.7% backed by high-margin consignment-based products. On expectation of a better product mix, we raise our FY23F net profit by 14%, lift our TP by 29% to RM4.05 (from RM3.15) and maintain our OUTPERFORM call.

Within expectations. FY22 core net profit met our forecast and consensus estimate, as its guidance for a bumper 4Q and higher ASP materialised.

Results’ highlight. FY22 revenue rose 13.7% on the back of resilient loading volume from existing customers that are involved in communication and power tools segments. FY22 core net profit climbed at a quicker pace of 16.7%, thanks to the contribution from the consignment-based Customer A which is involved in ASIC-based equipment for the decentralised finance (DeFi) industry. The consignment arrangement yielded better margins, bringing FY22 net profit margin to 6.1% (vs. 5.9% in FY21).

A strong product mix. The group’s strong presence in DeFi, communication and power tools segments position will enable it to sustain its FY23 growth trajectory. In addition, it anticipates increased contribution from the consumer electronics segment for a new model that was referred to by its ultimate parent company, Foxconn which indirectly owned c.14% of PIE.

Forecasts. We raise our FY23F net profit by 14% to reflect a better product mix and introduce our FY24F numbers.

Investment thesis. We continue to like PIE for: (i) its comprehensive skillset, making it a top-choice EMS provider for MNCs, (ii) various competitive advantages it enjoys as a unit of Foxconn, and (iii) its diversified and evolving client base, from those involved in communication devices, power tools and the latest DeFi equipment.

We raise our TP by 29% to RM4.05 (from RM3.15) to reflect the recent re-rating of the sector in terms of forward PER. Our TP is now based on a higher 18x FY23F PER (from 16x previously), which is in line with peers’ average. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

Risks to our call include: (i) loss of orders from/non-renewal of contracts by its key customer, (ii) labour shortage and rising labour cost, (iii) negative reviews on treatment on migrant workers by activists, and (iv) unfavourable currency movements.

Source: Kenanga Research - 27 Feb 2023