PIE has secured orders from Customer N for the upcoming model of its device. There are also increased orders from Customer M on a surge in demand for security devices amidst heightened geopolitical tensions. Meanwhile, orders from Customer A have picked up in Oct 2023 after a slow 3QFY23. All in, PIE’s earnings momentum should accelerate into 4QFY23 after a stable 3QFY23. We maintain our forecasts, TP of RM3.61 and OUTPERFORM call.

We got first-hand updates on PIE’s operations during our visit to Penang recently. The key takeaways from the visit are as follows:

1. PIE has secured orders from Customer N for the upcoming model of its device. It is contemplating an expansion into the final assembly portion for the new model, which extends its current role of PCB assembly. Meanwhile, its involvement in the production of the existing model will remain unchanged. Additionally, there has been an increase in orders from Customer M (manufacturing of national security devices) amidst heightened geopolitical tensions. Meanwhile, after a period of reduced orders from Customer A in the months of Jul-Sep 2023, there has been a notable pickup in orders from Oct onwards.

2. The group has successfully onboarded four new customers with products related to: (i) drone device for light shows, (ii) diagnostic device for oral cancer, (iii) smart home and (iv) industrial sensors. Negotiations with all four customers have been finalised and qualification and sampling phases are already underway. Upon commencing mass production, contributions from new customers are expected to collectively account for c.8−12% of total group revenue in FY24. Notably, Plant 5 (c.100k sq ft) is nearing completion at c.90% while Plant 6 (c.280k sq ft) is slated to be ready in 1QFY24, which will also be its biggest plant.

3. The group’s performance in the upcoming 3QFY23 is likely to remain relatively stable QoQ as the slow start in Jul was cushioned by a meaningful pickup in orders towards Sep. This momentum is anticipated to persist into the seasonally strong 4QFY23.

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 of migrant workers by activists; and (iv) unfavourable currency movements.

Source: Kenanga Research - 24 Oct 2023