PIE’s FY23 results beat expectations. Its 4QFY23 core net profit jumped 38% QoQ thanks to resilient orders and write-backs. It is poised for a strong FY24 with the onboarding of four new customers and robust orders from existing customers. We raise our FY24F net profit forecast by 5%, lift our TP by 5% to RM4.00 (from RM3.80) and maintain our OUTPERFORM call.

Above expectations. PIE’s FY23 core net profit of RM73.7m (+4.2% YoY) exceeded our and consensus full-year forecasts by 9% and 15%, respectively. The positive surprise came from better-than-expected loading volume in its seasonally stronger year-end period.

YoY, both PIE’s FY23 revenue and core net profit grew 4% thanks to robust deliveries from its bread-and-butter EMS segment (+11.8%) which makes up 84% of the group’s revenue. The strong performance in the EMS segment more than offset the decline in the raw wire and cable business (-23.1%) which is mainly catered for PC peripherals that is still experiencing weakness.

QoQ, its 4QFY23 core net profit surged by 38%, despite a relatively flat revenue performance. This notable growth can be attributed to the seasonal write-back of provisions for slow-moving goods throughout the year and a lower tax rate resulting from received reinvestment allowances.

Optimistic for 2024. Moving into 2024, we remain upbeat on the group’s prospects, underpinned by the onboarding of four new clients with products focusing on sensors, drones, medical devices, and smart home devices. These four customers are expected to contribute c.8%- 12% to FY24F revenue. Orders for communication-related devices from Customer M (for military applications) and DeFi equipment from Customer A remains robust. Orders from Customer N for its existing models will remain steady throughout 2024, with a well-defined pipeline for a new model expected in 2025. It remains committed to its expansion plans to increase the floor space in Plant 5 (100k sq ft + 80k sq ft expansion) and build a new Plant 6 (275k sq ft).

Forecasts. We raise FY24F earnings by 5.2% to account for higher contributions from four new customers.

Valuations. Correspondingly, we raise our TP by 5% to RM4.00 (from RM3.80) 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 - 26 Feb 2024