PIE reported its best first quarter ever with 1QFY22 CNP of RM18.8m (-13.3% QoQ; +56.2% YoY) which came in within expectation, making up 24%/25% of our/consensus estimate. Margins rose YoY despite the on-going labour crunch thanks to well optimised production yield rate. PIE has also secured a new customer involved in Application-Specific Integrated Circuit (ASIC)-based server hardware and has dedicated a 120k sq ft plant for this product. The new 150k sq ft plant is on track to be completed by end-2022 and PIE is hopeful to secure c.500 new foreign workers. Maintain OUTPERFORM call and TP of RM3.70.

Within expectations. PIE reported its best first quarter ever with 1QFY22 CNP of RM18.8m (-13.3% QoQ; +56.2% YoY) which came in within expectation, making up 24% of our, and 25% of consensus, fullyear estimate.

Results’ highlight. QoQ, 1QFY22 revenue dipped 6.6% to RM267.0m which is largely expected coming off its strongest quarter in 4QFY21. Also, the reported quarter had shorter working days due to the Chinese New Year break which explained the 13.7% decline in CNP to RM18.8m. YoY, 1QFY22 revenue inched 1.5% higher while CNP rose at a quicker pace by 56.2% as the group continued to optimise its manufacturing processes to cut down on wastage and human error.

New customer acquired. The group recently acquired a new customer involved in ASIC-based server equipment. Due to a change in the regulatory landscape, the customer has decided to diversify its manufacturing location to Malaysia and has identified PIE as one of the favourite vendors given the group’s robust track record and excellent yield rate, especially in handling high density printed circuit board assembly (PCBA). PIE has delivered its first order to the customer which is asking for more capacity allocation. To accommodate the customer’s demand, PIE had in mid-April taken back one of its rented-out plants (c.120k sq ft) and brought in new SMT lines.

Hopeful for foreign labour inflow. Despite the labour crunch, the group still managed to achieve commendable margins. To further improve its efficiencies, the group is hopeful to receive approval for its request of 500 foreign workers in preparation of its new plant (c.150k sq. ft.) that is on track to be completed by end-2022. The new plant will be equipped with factory automation and robotics to take on higher complexity products.

Maintain FY22E and FY23E CNP of RM77.8m and RM86.9m, representing growth rate of 28% and 12%, respectively.

Maintain OUTPERFORM call and Target Price of RM3.70 based on 18x FY22E (+0.5SD to 5-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 - 23 May 2022