More upside potential. Since our 1st TRADING BUY report issued on 18 April 2013, PIE’s share price has appreciated by 71%, clearly outperforming the FBMKLCI which only rose by 7% over the same period. At the current price of RM8.00, PIE is trading at 10.4x FY14E EPS, and we believe that the valuation is still undemanding given: (i) the double-digit FY14E NP growth, (ii) management’s proven ability in steering the group’s direction, (iii) the current tech upcycle, and (iv) strong parentage in Foxconn.

Strong commitments won customers trusts. Through our recent meeting with PIE’s management, we understand that the group has managed to win over its existing US medical device customer’s trust. This is evidenced from PIE becoming the client’s turnkey manufacturer from the previous role of just engaging in the PCBA (Printed Circuit Board Assembly) for one of the models of portable oxygen concentrators. We gather that the revenue contribution to the group is expected to be 3x that of the revenue derived from the previous PCBA line (from c.RM500k/month to now RM1.5m/month) and will start commencing in the 2H2014. Coupled with the existing revenue stream from its satellite set-up box (STB) box-built for one of the pay-cable television companies in the region, the box-built segment is expected to contribute RM70m to the group’s 2014 revenue.

Efforts bearing fruits. The group’s efforts in integrating the supply chain which: (i) enables the Group to gain added cost advantages within this highly competitive market and (ii) positions it in the forefront to attract increased business from new and existing customers; have started to bear fruits. We gather that the group has started to engage in the manufacturing of touch screen for one of the world’s giant largescreen players by using advanced technology, which also utilises the low-cost mechanism. While the revenue contribution is still minimal for now (c.RM1m/month), we reckon that there could be another round of revenue booster should the group manage to secure its position as a turnkey manufacturer as it did for other customers.

Recap of FY13 results and outlook for FY14. FY13 revenue recorded a robust growth of 29% on the back of higher demand for its electronic manufacturing products, which was more than enoug to offset the pallid sales in other products such as raw wire, cables and trading goods. On a closer look, the satellite STB project alone from its new customer had played a pivotal role in driving the topline growth, which commanded 10% of the group’s FY13 revenue. Meanwhile at the bottomline, net profit grew by 11% despite the lower margin (8.5%, -1.3ppts YoY) which was dragged down by different products mix and higher operating expenses. Looking forward, we believe that the group could achieve another round of double-digit growth in FY14 underpinned by: (i) the rapid growth of the electronics and telecommunications market amidst the cycle recovery, (ii) ongoing revenue stream from existing customers, and (iii) ability to secure more contracts from its new and existing customers, riding on its internal strengths as well as the strong parentage in Foxconn.

Maintain TRADING BUY with a higher TP of RM9.20 (from RM7.56). We are raising our FY14E earnings projection marginally by 2% for house keeping purposes post FY13 results. We are now ascribing a higher targeted PER of 12x (which represents +2SD above its 5-year average PER) from previous PER valuation of 10x in light of its resilient earnings growth, the technology sector upcycle as well as the strong parentage in Foxconn. All in, our TP is increased from RM7.56 to RM9.20 which offers a decent capital upside of 15% from the current price.

Source: Kenanga