PIE’s 9MFY23 results met expectations. Its 3QFY24, core net profit surged 76% QoQ thanks to improved orders. Indications are pointing to more orders from Customer M (for military use) and Customer A (for restocking). The production of Customer N’s new model is underway ahead of its launch in 2024. We fine-tune up our FY24F net profit by 5%, lift our TP by 5% to RM3.80 (from RM3.61) and maintain our OUTPERFORM call.

Within expectations. PIE’s 9MFY23 core net profit of RM45.6m (+5.1% YoY) accounted for 67% and 71% of our full-year forecast and the fullyear consensus estimate, respectively. We deem the results within expectations as we anticipate a seasonally strong 4Q.

Results’ highlights. YoY, PIE’s 9MFY23 revenue grew 11.6%, driven by robust deliveries from its bread-and-butter EMS segment (+24%) which more than offset the decline in the raw wire and cable business (- 27%). Net profit grew at a more moderate rate of 5.1%, impacted by earlier temporary slowdowns and adjustment to increased electricity tariffs.

QoQ, its 3QFY24, core net profit surged 76% thanks to improved orders from its customers, which was a reversal from the downtrend previously.

Looking forward to a stronger 4Q. Aligned with its seasonality, the group is looking forward to a stronger quarter ahead on the back of improved order forecast for key customers. This is based on higher demand for communication related devices from Customer M for military use amid the heightened geopolitical tension in the Middle East, the resumption of orders from Customer A and the gradual ramp-up of a new model for Customer N that is expected to be launched in 2024. Additionally, PIE has secured four new clients with products focusing on sensors, drones, medical devices and smart home devices. As such, the group is committed to continue with its expansion plans, enlarging its existing Plant 5 (100k sq ft) and the construction of Plant 6 (275k sq ft).

Forecasts. We raise FY24F earnings by 5% to account for higher contributions from four new customers.

Consequently, we raise our TP by 5% to RM3.80 (from RM3.61) based on an unchanged 18x FY24F PER, in line with peers’ average. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment thesis. We continue to like PIE for: (i) its comprehensive skill sets, making it a top-choice 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 foreign workers welfare by activists, and (iv) unfavourable currency movements.

Source: Kenanga Research - 20 Nov 2023