Valuation / Recommendation

We initiate coverage on P.I.E. Industrial Bhd with a BUY recommendation with a TP of RM4.59 based on FY24F EPS 30.2 sen and PE of 15.2x in line with the 10-years average. We like the stock for its attractive dividend yield, 3-year CAGR forward earnings of 24.4% from FY21 to FY24F, and cheap valuations.

Investment Highlights

One-stop integrated EMS provider. PIE is a one-stop integrated electronic manufacturing service (EMS) provider, capable of providing one-stop EMS to MNCs with the services of manufacturing and assembly of wire and cables, fabrication of moulds and dies, printed circuit board (PCB) assembly using precision SMT, testing of electronic products, plastic injection moulding, and Class 10K and 100K clean room product assembly. With the strong support from Foxconn Technology Group, which is PIE’s indirect major shareholder, the company can benefit from its network to improve its profit margins by leveraging on the raw materials.

Proven track record. PIE was able to maintain profitable since inception, achieving a 10-year revenue CAGR of 11.4% from FY12 to FY21. Operations were unaffected during the Covid-19 pandemic as the company was classified under essential services.

More new customers on board. We noticed that with Customer N secured in FY20, which is involved in the video games business, a full-year revenue contribution from this customer was realised in FY21, allowing the company to achieve a record-breaking revenue above RM1bn. The company plans to dedicate a floor space of 120,000 sq ft to a new customer namely Customer A, involved in the supercomputing cloud business secured in FY21. With a full-year revenue contribution from Customer A expected in FY22, we opine that this could potentially catalyse PIE’s earnings moving forward.

Arrival of more workers. In tandem with the expansion plans, the company plans to hire more workers, expected to arrive in 3Q22. Running at double shifts on 24 hours a day, we expect a RM150m worth of backlog orders to be cleared by end of FY22.

Experienced management team. The company is managed by an experienced management team, spearheaded by MD Mui Chung Meng who has more than 20 years of experience in the EMS industry.

Risk factor. Key risks include fluctuation of raw material prices and labour shortages.

Source: Mercury Securities Research - 13 Jun 2022