PIE hit a record-high 1QFY21 CNP of RM12.1m, on 161% jump in revenue, in line with our/street forecast at 16%/20% of full-year estimates as we expect even stronger earnings in subsequent quarters. Order pipeline remains strong with the taken-root work-from-home culture spurring higher demand among consumers. Being registered under the Responsible Business Alliance and constantly upholding the highest ethical standards in workers’ welfare, PIE continuously attracts MNCs and recently secured a new customer in robotics. To take on more orders, PIE is setting up a new 150k sq. ft. plant, boosting existing floor space by c.50%. Maintain OUTPERFORM call and Target Price of RM4.00.

Within expectations. PIE recorded an all-time high first quarter earnings for 1QFY21 with CNP of RM12.1m (vs. CNL of RM2.5m in 1QFY20), representing 16% of our, and 20% of consensus, full-year estimate. We deem this to be in line with our expectations as the performance is commendable despite seasonality in the first quarter and we anticipate a sustained upward trajectory in earnings for subsequent quarters.

Results’ highlight. YoY, 1QFY21 CNP came in at RM12.1m (vs. CNL of RM2.5m in 1QFY20) on the back of 161% increase in revenue as the group continued to enjoy strong orders from its recently secured customer, as well as stable demand from existing customers. QoQ, 1QFY21 revenue increased 6.6% to RM263.2m despite seasonality. However, CNP dipped 65% as the previous quarter recorded RM13.9m in forex gains.

Benefiting from higher commodity prices. Moving into 2QFY21 which has no long public holidays compared to 1QFY21, we expect QoQ growth on more working days. In addition, customer’s forecast remains strong given rising Covid-19 cases and the re-emphasising of WFH mode sustaining higher demand for the end-products. PIE has also planned ahead of time to ensure sufficient inventories and is not impacted by the chip shortage or higher freight charges that its competitors may be facing. In addition, higher copper price would in turn translate into higher ASPs for its cable and wire harness manufacturing divisions which contribute 20% to the group’s revenue.

RBA certified. Being registered under the Responsible Business Alliance (RBA) since 2015, PIE has been upholding the highest ethical standards in terms of workers’ welfare and has passed all annual audits by its customers with most of them being publicly-listed MNCs. This has enabled PIE to continuously attract MNCs that are looking to diversify their supply chain. The group has recently secured another new MNC customer in robotics and is setting up a new 150k sq. ft. plant to take on more orders, boosting existing floor space by c.50%.

Maintain FY21E and FY22E CNP at RM73.3m and RM84.9m. Maintain OUTPERFORM call and Target Price of RM4.00 We base our valuation on a FY21E PER of 21x, representing +1SD to 3-year mean.

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

Source: Kenanga Research - 24 May 2021