PIE has concluded negotiations with four prospective customers and their potential orders are now proceeding to the qualification and sampling stages, with mass production expected in FY24. It is revamping its Thai operations to ride on the EV ramp-up by Foxconn in 2024. We maintain our forecasts, TP of RM3.61 and OUTPERFORM call.

We came away from an engagement with PIE yesterday feeling reassured of its prospects despite a temporary slowdown. The key takeaways are as follows.

1. PIE expects weakness to persist over the immediate term but its orders should pick up from Oct during the seasonally strong period.

2. It indicated that it continues to receive encouraging enquiries from new prospective customers with products such as servers, medical, smart home and drone equipment. At present, it has concluded negotiations with four of them and their potential orders are now proceeding to the qualification and sampling stages. It expects all four to contribute meaningfully (c.8-12% of group revenue) upon the commencement of mass production in FY24. With that in mind, it will carry on with its expansion plans, i.e. Plant 5 (c.100k sq ft) that is c.90% completed and Plant 6 (c.280k sq ft) to be ready in 1QFY24, which will also be its biggest plant.

3. PIE is also in the midst of revamping its Thailand plant (c.80k sq ft) to accommodate more orders for wire harnesses and cables, with a focus on EVs, especially in Thailand which is an automotive hub. PIE’s parent company, Taiwan-listed Pan-International Industrial Corporation (which owns 51.42% of PIE), will fund the expansion of c.US$20m to increase the plant’s floor space by 40% and purchase new equipment. Note that this is in relation to Pan-International Industrial Corporation’s parent company, Foxconn, who is planning to start producing EVs in Thailand in 2024.

Forecast. Maintained.

We maintain our TP of RM3.61 based on unchanged 18x FY24F, in line with its peers’ 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 and power tools to 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 - 8 Aug 2023