Despite a 60% workforce restriction, 2QFY21 CNP of RM13.4m (+11% QoQ) came in largely within expectation, bringing 6MFY21 CNP to RM25.4m (vs. CNL of RM3m in 6MFY20) which made up 42% of our, and 46% of consensus, full-year estimate. With workforce limit now increased to 80%, the group is back on track to continue its QoQ growth trend, in tandem with its seasonally stronger 2H. Maintain OUTPERFORM call with a higher Target Price of RM4.15.

Within expectations. 2QFY21 CNP of RM13.4m (+11% QoQ) came in largely within expectation, bringing 6MFY21 CNP to RM25.4m (vs. CNL of RM3m in 6MFY20) which made up 42% of our, and 46% of consensus, full-year estimate.

Results’ highlight. QoQ, despite 2QFY21 revenue slipping 11% lower to RM235.4m due to the 60% workforce restriction during MCO 3.0 period, the group managed to make up for the shortfall with better cost control and improved efficiencies. As a result, CNP rose 11% while NPM inched 1.1ppt higher. YoY, 2QFY21 CNP of RM13.4m saw a big improvement from CNL of RM0.6m in 2QFY20 on better loading volume as revenue doubled. Cumulatively, the group recorded 6MFY21 CNP of RM25.4m while revenue jumped 135% to RM498.5m, signalling a healthy momentum towards the RM1b revenue target.

Stronger 2H intact. As the state of Penang entered Phase Two of the National Recovery Plan in mid-July, PIE was able to raise its workforce to 80%, enabling the group to pick up on backlogs. This places the group back on track to continue its QoQ earnings growth trend, in tandem with its seasonally stronger 2H. In addition, the group’s entire workforce has been administered with the first dose of vaccine via the Public-private Partnership Covid-19 Industry Immunisation Programme (PIKAS) and will be getting their second dose by the end of the month.

Expansion underway. Renovation of its new plant (150k sq. ft.) has started and will be expected to commence operation by 2HFY22. This will enable the group to take on Level 10 manufacturing process with factory automation and robotics to reduce reliance on human labour. Meanwhile there is a minor extension (+20% floor space) to one of its existing factories to kick start the production for a newly secured MNC customer related to robotics. In addition to PIE’s capabilities, its commitment to uphold the highest ethical standards in terms of workers’ welfare has made the group a preferred vendor among MNCs. PIE has been registered under the Responsible Business Alliance (RBA) since 2015.

Maintain FY21E and FY22E CNP at RM59.8m and RM76.0m.

Maintain OUTPERFORM call and higher Target Price of RM4.15 (previously RM3.30) as we roll forward our earnings base to FY22E, pegged to a 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 - 16 Aug 2021