INVESTMENT HIGHLIGHTS

• 1QFY18 earnings below expectation

• Profit for the quarter fell 37.7% yoy to RM7.2m

• Expect better second half of FY18

• Maintain BUY with adjusted TP of RM1.95 .

1QFY18 earnings below expectation. P.I.E. Industrial Bhd’s (PIE) profit of RM7.2m was below our expectation, making up 13% of our full year forecast and consensus’ estimates. No dividend was declared for the quarter as expected.

Profit for the quarter fell 37.7% yoy to RM7.2m as revenue dipped by 10.3% to RM145.3m. The decline in revenue is due to the lower demand from its customers particularly from the electronics manufacturing services (EMS) segment (-12.3% yoy to RM140.7m), which is slightly offset by higher sales from trading segment that more than tripled to RM4.2m. Moreover, gross profit for the quarter was compressed to 3.4% (from 11.5% in 1QFY17) due to lower margin from product mix and higher cost of sales. Qoq, earnings decreased by 70% mainly due to seasonality on top of the reasons mentioned earlier.

Expect better second half of FY18. We believe that 2H18 earnings should improve as PIE is working on higher margin contracts that include industrial printing products as well as other commercial products which are expected to only start contribution from 2HFY18 onwards. Furthermore. second half is also seasonally stronger.

Trim FY18F/FY19F earnings estimates by 9.8%/9.0% to RM49.8m/RM55.5m respectively. We have now assumed lower revenue and profit margins in view of the higher cost of sales.

Maintain BUY with adjusted TP of RM1.95 (previously RM2.16) following the changes in our earnings estimates. Our TP is based on unchanged valuation method of 15x PER on FY18 EPS of 12.97 sen. The company is in a net cash position of RM99.9m and dividend yield is expected at 3.7%. Currently valuation is deemed attractive following the correction in its share price. PIE’s fundamentals are still intact as it continues to explore and replenishes new orders.

Source: MIDF Research - 28 May 2018