INVESTMENT MERIT

- An under-researched stock. P.I.E Industrial Bhd (“PIE”) may not be in the spotlight of analysts, but in times where income-yielding stocks are sought as one of the preferred investment strategies, we believe that PIE is certainly worth a look by investors given its resilient earnings quality, sizeable cash pile and attractive yields.

- Resilient earnings. Despite its association with the Hon Hai/Foxconn Technology Group, PIE actually sources its own contracts. Currently, its Malaysian business contributes less than 10% of the group’s total revenue. However, the local contribution is likely to increase with the kick-start of its new set-up box contract, where production is likely to go full steam from 4Q13 onwards. We project FY13 EPS to grow 4.8% on the back of a 5% rise in the revenue.

- Sizeable cash hoard. As at Dec-12, PIE boasted of a cash pile of RM98.4m or RM1.54/share with no borrowings. However, this will not likely be used for any special dividend payouts as the cash hoard is largely for its working capital given the company’s equally sizable receivables. However, a share dividend is probable given the size of its RM177.8m retained earnings vs. the issued capital of RM64.0m. On the other hand, on 5 April 2013, PIE proposed a total GDPS of 32 sen (20 sen special & 12 sen regular). The entitlement and payment dates would be confirmed later. The total payment works out to an attractive 5.2% net yield.

- Trading Buy for the 5.2% net yield in Jun. We believe that it is an opportunity to accumulate the stock now for its dividend payment, which is likely to be in Jun (based on past records). Hence, we are recommending a Trading Buy on PIE. Fundamental-wise, PIE is a Long-Term Buy stock. We value the stock at 10x FY13 PER (in line with its 5-year historical average PER of 9.9x), implying a fair value of RM5.14/share. Currently, the stock trades at 9.1x FY13 PER or 6.1x ex-cash.

SWOT ANALYSIS

- Strength: A fully integrated one-stop turnkey EMS provider.

- Weaknesses: Facing margin compression on lower selling price as the product lifespan ages, which forces PIE to continuously “costing” down.

- Opportunities: Targeting to secure more potential business from its new and existing customers through its electronics manufacturing services division.

- Threats: Continuous need to maintain itself at the forefront of technology to remain competitive.

TECHNICALS

- Resistance: RM5.00 (R1), RM5.20 (R2)

- Support: RM4.65 (S1), RM4.20 (S2)

- Comments: Having recently broken out of a year-long trend channel, PIE’s share price looks poised for further gains. Downside also appears to be limited, and we expect some degree of bargain hunting just above the RM4.60 resistance-turned-support.

BUSINESS OVERVIEW

PIE, which was listed on Bursa Malaysia in July 2000, is an electronic manufacturing services (EMS) company primarily engaged in the manufacturing and assembly of cable and wire, fabrication of moulds and dies, PCB assembly using precision SMT, plastics injection moulding and Class 10K and 100K clean room product assembly and testing of electronic products. In addition, PIE is capable of providing a complete integrated ‘one-stop’ CEM (contract electronic manufacturing) services to the major MNCs with its new up-to-date manufacturing facilities. Most of PIE’s products are exported directly or indirectly to USA (60% of its revenue), Europe (30%) and the Asia Pacific region (10%). PIE is related to the world’s largest contract manufacturing services group, Hon Hai/Foxconn Technology Group, where the latter owns a 20.8% stake in PIE’s parent company, Pan-International Industrial Co. Ltd, which has a 51.4% stake in PIE.

BUSINESS SEGMENTS

Its principal activities are mainly categorised into two major divisions, namely:

Manufacturing of industrial products. This division manufactures cables and wires for electronic devices, cable moulding compounds and PCB assemblies and also wire harness for the computer, communication, consumer electronic industry.

Trading of electrical products. This division trades computer peripheral products, which include scanners, CD-ROM, CD-RW, DVD player/recorder, Bluetooth headset and etc. for the ASEAN region covering primarily Thailand, Indonesia and Malaysia. The company is also involved in the marketing and trading of cable assembly for the Southeast Asia region.

Source: Kenanga