PIE's 4QFY24 is expected to show sequential and YoY improvements, supported by normalised forex rates and higher contributions from high-margin Customer A. For FY25, the group remains optimistic, with expanded production from Customer A and contributions from a new switch and server client, targeting RM1b in revenue at 50% utilisation of Plant 6. PIE continues to streamline operations by prioritising high-margin clients and anticipates new orders from automotive, robotics, medical, and telecom sectors post-U.S. election. Despite rising labour costs, PIE is negotiating with clients to pass-through these increases. We maintain our FY24 forecast, raised our FY25 net profit estimate by 8%, and increased our target price to RM6.85, reiterating our OUTPERFORM rating.
We came away from PIE's results briefing remaining positive on its prospects. The key takeaways are as follows:
Forecasts. We are maintaining our FY24 net profit estimate but increasing our FY25 net profit by 8% to RM112m, reflecting an updated, higher margin assumption for Customer A to align with recent trends.
Valuations. Correspondingly, we raised our TP to RM6.85 (from RM6.35 previously) based on FY25F EPS pegged to an unchanged PER of 23.5x, at a 10% discount to AI server-related peer such as NATGATE (OP; TP: RM2.30). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).
Investment case. We continue to like PIE for: (i) its comprehensive skill set, 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 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 and (iii) unfavourable currency movements.
Source: Kenanga Research - 12 Nov 2024
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