PIE returned to the black as 3QFY20 CNP of RM13.8m brought 9MFY20 CNP to RM10.7m (-58% YoY), representing 68% of our, and 43% of consensus, full-year forecast. We deem this within expectation as we expect the recovery momentum to continue in subsequent quarters. The group is anticipating strong contribution from a new customer as the related-product is currently facing shortage due to a spike in demand. Contribution from this product is estimated at RM400m for FY21. Hence, we raise our forecasts but maintain MARKET PERFORM with a higher Target Price of RM2.32.

Within expectations. The group returned to the black with 3QFY20 CNP of RM13.8m (vs. 2QFY20 CNL of RM0.6), bringing 9MFY20 CNP to RM10.7m (-58% YoY). This represents 68% of our, and 43% of consensus, full-year forecast. We deem this to be within expectation as we anticipate the recovery momentum to continue in subsequent quarters.

Results’ highlight. YoY, 3QFY20 CNP dipped 18% to RM13.8m on 36.6% increase in revenue as the group managed to deliver backlogs (accumulated during the MCO lockdown) upon resuming to full capacity since June. Cumulatively, 9MFY20 revenue dipped 11.9% to RM439.5m while CNP slipped 58% to RM10.7m. QoQ, 3QFY20 revenue doubled to RM227.4m due to higher plant utilisation as customers resumed orders after lockdown restrictions eased. Subsequently, the group managed to record a reversal of inventories written down worth RM4.3m which boosted 3QFY20 CNP to RM13.8m.

Recovery momentum to continue. We are positive on the group’s ability to return to the black and anticipate the momentum to continue into subsequent quarters. PIE’s existing customers have resumed orders and contributions are expected to remain stable barring any lockdown in the near future.

In addition, the group has received a waiver from its new customer with regards to the qualification process which was done via remote inspection due to travel restrictions. As a result, the group managed to begin operation on the new product which is now profitable, producing 65% of customer’s forecasted order. Full ramp-up will take place in 1QFY21. The group expects this new customer alone to contribute RM400m in FY21. At present, the product is selling very well across the globe.

We raise our earnings forecasts for FY20E/FY21E by 25%/43% to RM19.6m/RM56m as we expect the recovery momentum to continue along with strong contribution from the new customer.

Maintain MARKET PERFORM but with a higher Target Price of RM2.32 (previously RM1.45) to reflect improving prospects and the inclusion of a new customer. We base our valuation on a higher 16x FY21E (previously 14x), representing +0.5SD of it 3-year mean.

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 - 23 Nov 2020