Valuation / Recommendation

Results were within expectations, achieving 67.0% and 68.2% of our full year revenue and profit forecasts for FY22, but was higher qoq (+12.0%), yoy (+8.2%) due to higher demand from new and existing customers for raw wire & cable products and wire harness products, and higher orders for EMS.

We revise our revenue and profit forecasts downward by 7.1% and 2.7% - 7.6% due to lower revenue contributions and maintain a BUY recommendation on PIE with a lower TP of RM3.72 based on FY23F EPS 18.0 sen and PE of 20.7x in line with the 2-years average. We like the stock for its attractive growth prospects, and diversified customer base. The target price represents a potential return of 45.9% over the current price.

Investment Highlights

Proven track record and strong support from Foxconn. PIE was able to maintain profitable since inception, achieving a 10-year revenue CAGR of 11.4% from FY12 to FY21. Operations were unaffected during the Covid-19 pandemic as the company was classified under essential services. With the strong support from Foxconn Technology Group, which is PIE’s indirect major shareholder, the company can benefit from its network to improve its profit margins by leveraging on the raw materials.

Strong orders from existing customers. Customer N was secured in FY20, involved in the video games business. A full-year revenue contribution from this customer was realised in FY21, contributing approximately 40% to total revenue, allowing the company to achieve a record-breaking revenue above RM1bn. As of end Oct 2022, 6 SMT lines had been commissioned for this customer.

The company dedicated a floor space of 120,000 sq ft and 5 SMT lines to a new customer namely Customer A, involved in the supercomputing cloud business secured in FY21. Customer A currently contributes approximately 20% to PIE’s total revenue. With a full-year revenue contribution from Customer A expected in FY22, we opine that this could potentially catalyse PIE’s earnings moving forward, driven by higher margins as raw materials are consigned by the customer. Orders from customer N and A remained strong with its SMT lines running at full utilisation rate, and we do not rule out any possibilities of further expansion by PIE to cater for more orders from its existing and pipeline of customers.

Arrival of more workers. In tandem with the expansion plans, the company brought in additional foreign workers which arrived in 3Q22. The additional workers replaced some inefficient existing workers to produce higher productivity and output. Running at double shifts on 24 hours a day, we expect RM80m worth of backlog orders to be cleared by 1H23.

Risk factor. Fluctuation of raw material prices and labour shortages.

Source: Mercury Securities Research - 22 Nov 2022