Despite the labour crunch where even big EMS names have suffered terribly QoQ, PIE’s 3QFY21 CNP saw 0.8% QoQ gain to RM13.5m, bringing 9MFY21 CNP to RM38.9m (+262% YoY) which made up 65%/73% of our/consensus estimates. We deem this to be in line, with the anticipation of a better 4Q as the group enters its seasonally stronger quarter with 100% workforce (vs. 80% in 3QFY21). Maintain OUTPERFORM call with a higher Target Price of RM4.30.

Within expectations. 3QFY21 CNP of RM13.5m (+0.8% QoQ; -2.3% YoY), brings 9MFY21 CNP to RM38.9m (+262% YoY) which made up 65% of our, and 73% of consensus, full-year estimate. We deem this to be largely in line, with the anticipation of a better 4Q as the group enters its seasonally stronger period with 100% workforce.

Results’ highlight. QoQ, 3QFY21 revenue rose 2.3% to RM240.8m on higher loading volume from customers. 3QFY21 CNP grew at a slower quantum of 0.8% to RM13.5m due to higher cost incurred for hiring local labour as local borders remained closed to foreign labour for the manufacturing sector. YoY, the impact of the labour situation can be further illustrated in the YoY comparison where revenue rose 5.9% but CNP inched 2.3% lower. However, PIE was still able to weather through the challenges and posted a commendable set of results. Cumulatively, the group recorded a 262% jump in 9MFY21 CNP of RM38.9m while revenue leapt 68% to RM739.3m, further reinforcing our confidence of the group surpassing the RM1b revenue mark.

Entering a stronger 4Q. The industry-wide labour shortage issue has significantly impacted even big EMS names in Malaysia as reflected in their devastating QoQ earnings plunge. PIE on the other hand managed to grow its earnings by 0.8% QoQ which could have been even better without the labour issue. As the group enters 4QFY21, it can utilise 100% of its workforce (vs. 80% in 3QFY21) which is important to catch up on the c.RM70m backlog and new orders given that the final quarter is seasonally stronger thanks to the festive holidays and year-end promotions.

Emerging as the go-to EMS solution provider. After many years of honing its capabilities behind the scenes, the group is starting to reap the benefits of its labour as many MNCs with diverse products are knocking on its door, seeking PIE’s expertise. Having capabilities well beyond typical household cleaning products is a niche in Malaysia and this shifts the leverage into PIE’s favour, allowing the group to choose jobs that contribute favourably to its margins. To cater for more orders in a labour shortage situation, the group has started renovation of a new plant (150k sq. ft.) that is equipped with factory automation and robotics to reduce reliance on human labour which will commence operation in 2HFY22.

Maintain CNP forecast for FY21 and tweak FY22E CNP by +3% to reflect spill over of orders from 4QFY21 into FY22.

Maintain OUTPERFORM call with higher Target Price of RM4.30 (previously RM4.15) based on 21x FY22E (+0.5SD 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 - 22 Nov 2021