INVESTMENT HIGHLIGHTS

• FY17 earnings within expectations

• FY17 net profit climbed 33%yoy due to higher sales

• Decent FY18 sales and profit growth

• Upgrade to BUY with unchanged TP of RM2.16

FY17 earnings within expectations. P.I.E. Industrial Bhd’s (PIE) profit was in-line with our expectation, making up 98% of our forecast but below consensus’ estimates at 90%. No dividend was declared for the quarter. Full year DPS is 5.0 sen.

FY17 net profit climbed 33%yoy due to higher sales. PIE’s revenue for FY17 rose 17% due to higher orders from its existing and new customers from its electronic manufacturing services (EMS), raw wire & cables products and trading segments. The higher yoy profit is also attributed to lower administrative and distribution expenses.

4QFY17 profit improved marginally yoy by 1% to RM23.9m as revenue fell by 10%. The lower yoy revenue for the quarter is partly due to the shortage in raw material, which pushed back the delivery of certain products. Qoq, net profit soared over 12 times mainly due to the reversal of provision for doubtful debt in the previous quarter amounting to RM8m.

Shortage in raw material supply may be resolved soon. PIE is in discussion with its customer to resolve the issue of shortage in certain components and expect for the issue to be resolved in the next two quarters. Any resolution will be positive for the company.

FY18 sales and profit growth to be supported by orders from existing and new customers. We expect 8% of sales growth for FY18 and 15% growth in bottomline due to the potential new projects from existing and new customers. We opine that PIE’s margins could improve going forward as it focuses on higher margin contracts for industrial, commercial and also potentially consumer products. Our earnings estimates are unchanged.

Upgrade to BUY with unchanged TP of RM2.16 as we believe that value has emerged after the recent correction in its share price. Its current PER of 13.5x is lower compared to other EMS players’ current average of 19.45x while dividend yield is expected at 3.2%. PIE’s fundamentals are still intact as it continues to explore and replenishes new orders. Our TP is based on unchanged valuation method of 15x PER pegged on FY18 EPS of 14.38 sen.

Source: MIDF Research - 26 Feb 2018