1QFY20 CNL of RM3.6m is tracking below our/consensus’ full year estimate of RM45.4m CNP. The group saw lower loading volume as its plant was in total shutdown during the earlier phase of the MCO. We expect the second quarter to remain soft due to inadequate operators in April and May while June only saw 75% of its workforce utilised. The group should return to the black from 3Q onwards. Slashed FY20E and FY21E CNP by 65% and 25% to RM15.7 and RM39.1m, respectively. Maintain MARKET PERFORM with a lower Target Price of RM1.22 (previously RM1.40).

Below expectation. 1QFY20 dipped into the red, recording a CNL of RM3.6m, below our/consensus’ forecast of RM45.4m as it was adversely impacted by the global pandemic. The group saw a decline in loading volume towards the end of January with worsening conditions towards February. Not helping was the initial phase of the movement control which was enforced starting mid-March that brought its plant to a total halt in that month.

Results’ highlight. 1QFY20 revenue plummeted 33.6% YoY to RM100.7m. The decline was seen across all segments with the electronic manufacturing services (EMS) segment (c.73% of group sales) being the worst performer, declining 36% YoY. Revenue from raw wire and cable dipped 10% while wire harness (c.3.6% of group sales) fell 37%.

Picking up the pace. Looking ahead, we expect the second quarter to see slight improvement but still remain soft considering the group was in total lockdown in the month of April, coupled with less than adequate workforce returning in May. Workforce was at 75% in June, as there were some operators that were not able to return to work. The group should return to the black from 3Q onwards. Earlier this year, the group was in the midst of having its new equipment audited by a potential new customer. However, the Covid-19 outbreak has halted the progress till now, resulting in higher depreciation charges while contribution from this new customer has yet to kick in. On a positive note, the group is still optimistic that the new customer will continue with the decision to outsource the manufacturing process to PIE but contributions will be deferred until international travel is permitted for the customer to carry out qualification process on site.

We slashed our FY20E and FY21E CNP by 65% and 25% to RM15.7 and RM39.1m, respectively. We factor in lower loading volume coupled with delayed timeline for new product introduction due to the travel restriction which is hindering the potential customer as mentioned above from carrying out the qualification process.

Maintain MARKET PERFORM with a lower Target Price of RM1.22

(previously RM1.40). Our valuation is based on 12x PER (in line its 5- year mean) as we roll forward our earnings base to FY21E.

Risks to our call include: (i) lower/higher-than-expected sales, (ii) loss of orders from its key customers, and (iii) adverse/favourable currency translations

Source: Kenanga Research - 1 Jul 2020