KUALA LUMPUR (Aug 7): Kenanga Research has cut its target price for PIE Industrial Bhd by 44 sen or 10.86% to RM3.61, based on an unchanged price-to-earnings ratio of 18 times that is now pegged to the electronic manufacturing services (EMS) company’s financial year ending Dec 31, 2024 (FY2024) earnings.

In a research note, its analyst Samuel Tan said he had cut PIE Industrial’s earnings forecast by 21% to RM67.8 million for FY2023 and RM76.9 million for FY2024, after its first six months ended June 30, 2023 (1HFY2023) results missed expectations.

Tan said the company’s core net profit of RM25.2 million, which fell 7% year-on-year, represented only 29% of Kenanga Research’s full-year forecast and 33% of the consensus estimate.

“The variance against our forecast was attributable largely to the deferment of orders from most customers,” he said.

Tan noted that its revenue for 1HFY2023 grew by 9.9% to RM618.96 million, thanks to a 22% increase in contributions from its EMS segment, mitigating the 29% decline from the raw wire and cable business.

“Despite its revenue growth, 1HFY2023 earnings eased 7% due to an unfavourable revenue mix, particularly stemming from a significant deceleration in orders from Customer A which typically yielded better margins. Adding to that, its administration and distribution costs jumped 24% on the back of higher electricity tariffs and elevated labour wages,” he said.

Tan said PIE Industrial had warned that the slowdown, which started in June, may continue over the next few months.

“We believe that this is attributable to customers moving away from keeping high stock levels to just-in-time inventory management on a tepid demand outlook due to the global economic slowdown.

“The group continues to engage with new potential customers and remains sanguine on securing a few clients in the server, medical device and consumer product space. The group will continue with its expansion plans, enlarging its Plant 5 (100,000 sq ft) and Plant 6 (275,000 sq ft).

At market close on Monday, PIE Industrial’s share price rose three sen or 1.1% to RM2.67, for a market capitalisation of RM1.03 billion.