• Vertically integrated EMS provider

• Advantages from being part of a global leader

• Net cash and generous dividends

• Initiate with Neutral and TP of RM2.55 Business Overview:

P.I.E. Industrial Bhd (PIE) is a vertically integrated electronics manufacturing services (EMS) provider with a wide range of capabilities to serve customers from various industrial sub-sectors. It is a 51.4% subsidiary of Taiwan-listed Pan International Corporation Ltd, which is in turn a part of the Foxconn Technology Group.

Investment Theses: 1. Vertically integrated EMS provider. PIE was set up in 1989 and started off with raw wire and cable manufacturing, cable assembly and wire harness. Overtime, it expanded its capabilities to become a one-stop EMS provider with four operating plants in Penang and one in Thailand.

2. Advantages of from being part of a global leader. As part of the world’s largest and most renowned EMS giant, Foxconn, PIE is able to benefit from the economies of scale enjoyed by its parents as well as technological transference. As a result, PIE is able to price much more competitively with up-to-date technological capabilities.

3. Net cash and generous dividend. PIE is in a net cash position of RM103.9mm and has been paying out more than 30% of its profits historically with recent payout ratios averaging at 50%. The net cash also makes up 11.5% of its market cap.

4. But strong Ringgit may dampen average selling prices.

About 80% of PIE’s sales are denominated in USD. Previously, PIE has benefitted from the stronger USD but the trend may be reversing. The absence of forex and currency conversion gains could also offset the higher volume of products sold.

Initiate with Neutral and TP of RM2.55. We value PIE at 15x PER based on FY18 EPS of 17 sen. The forward PER is slightly above the average of VS Industry Bhd and SKP Resources Bhd’s 14.75x due its strong management capabilities and healthy balance sheet. However, we are Neutral on the stock due to strong Ringgit which will dampen the average selling prices. Re-rating catalysts for the stock will be higher-than-expected orders and better-than-expected margins

Source: MIDF Research - 16 Jun 2017