Kenanga Research & Investment

P.I.E. Industrial - New Orders to Keep Plants Humming

Publish date: Tue, 28 Feb 2023, 09:52 AM

PIE anticipates another robust performance in FY23 on upwards revisions in orders from existing customers in the ASIC-based equipment and consumer device space. In addition, more potential new customers have toured its plants and PIE is confident a few will sign up, and their new orders will keep its upcoming Plant 6 humming in FY24. We maintain our forecasts, TP of RM4.05 and OUTPERFORM call.

The key takeaways from our meeting with the group yesterday are as follows.

1. In line with recent improved sentiment in the DeFi space, PIE has also been notified by Customer A to increase the production of the ASIC-based equipment. The group is currently operating at near peak capacity in the c.120k sq ft Plant 3 (fully dedicated for Customer A) and is mulling the possibility of expanding more capacity in Plant 5 (c.100k sq ft) if Customer A continues to place more orders. Note that plant 5 (previously leased out, now taken back) is currently under renovation and will come online by end-2QFY23.

2. PIE is also anticipating Customer N (referred by its parent company, Foxconn) to increase order forecast for its consumer devices, particularly, for the latest model boasting a higherresolution display for a more immersive viewing experience. This is expected to drive growth in FY23, contributing c.35% of group revenue (vs. c.30% in FY22).

3. It is in the midst of installing solar panels at its plants. Upon completion in 2HFY23, this could effectively offset the increase in its electricity cost following the recent hike in Jan 2023.

4. The group has been in active discussion with various potential customers looking to relocate their manufacturing outsourcing to Malaysia. PIE is confident to sign on a few of them in FY23 and their orders should keep its upcoming Plant 6 (c.150k sq ft) humming in FY24, contributing to c.5% of group revenue.

Forecast. Maintained.

We maintain our TP of RM4.05 based on unchanged 18x FY23F, in line with peer’s forward average. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We continue to like PIE for: (i) its comprehensive skillset, making it a topchoice EMS provider for MNCs, (ii) various competitive advantages it enjoys as a unit of Foxconn, and (iii) its diversified and evolving client base, from those involved in communication devices, power tools and the latest DeFi equipment. Maintain OUTPERFORM.

Risks to our call include: (i) loss of orders from/non-renewal of contracts by, its key customer; (ii) labour shortage and rising labour cost; (iii) negative reviews on treatment on migrant workers by activists; and (iv) unfavourable currency movements.

Source: Kenanga Research - 28 Feb 2023

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