Results Report

YTD 3Q FY17 revenue rose 28.6% vs YTD 3Q FY16, whilst net profits rose 88.3% over the same period. PBT for 3Q FY 2017 was punished by an impairment charge which management believes will be reversed in 4Q FY 2017. The increase in revenue is mainly due to higher demand from existing customers for electronics manufacturing activities and raw wire & cable products. However, sequential sales growth is begin-ning to decelerate. The stronger MYR is beginning to make itself felt as margins are trending lower among many exporters. See page two for more details. 

Investment Risks

Risks to our recommendation and target price include: i) a sharp reduc-tion in consumer/business electronics demand, ii) a stronger USDMYR exchange rate, iii) an increase in the general level of interest rates, iv) labour shortages, and v) loss of key customers. 

Recommendation

We reduce our fair value estimate to MYR 1.88 and maintain our HOLD recommendation on P.I.E. Industrial Berhad ("PIE") until earnings visibility improves. Looking ahead, average ROE is likely to be maintained at levels of 7-9%, whilst P-BV stands on 1.7x trailing book value and 2.1x current year book value. On a more positive note, the company pays a dividend yield above 3% and has a fairly clean balance sheet. 

Company Profile

PIE provides a one-stop contract electronic manufacturing service for the computer, electronics and telecommunication industries, including assembly of various cables, and it also tests various electronic products including bar code scanner assembly and PCB assembly. Major markets include Malaysia, Europe, the United States, and otherAsia Pacific coun-tries. Taipei-based Hai Hon Precision Industry Co Ltd is a substantial shareholder of PIE. 20% of PIE's revenue is derived from wires & cables whilst 80% comes from original equipment manufacturing of electronic manufacturing services (EMS) for box-builds and semi box-builds, and barcode scanners. 90% of PIE's revenues are exported either directly or indirectly.

Source: Wilson & York Securities Research - 6 Nov 2017