INVESTMENT HIGHLIGHTS

• FY18 earnings in-line

• FY18 CNP slipped 0.8%yoy to RM37.7m

• 4QFY18 CNP shot up by 81.1%yoy to RM15.2m

• FY19 prospects look brighter

• Maintain BUY with an unchanged TP of RM1.86

FY18 earnings in-line. P.I.E. Industrial Bhd’s (PIE) core net profit (CNP) of RM37.7m met our expectation at 98.6% of full year estimate but slight below consensus at 91.3%. We have excluded fair value gain of RM5.45m from our CNI calculation, among others.

FY18 CNP slipped 0.8%yoy to RM37.7m as revenue dipped 2.7% to RM661.3m. The drop in CNP for the period was mainly due to the slower-than-expected delivery in orders which led to production inefficiency and subsequently lower profitability. The shortage in component supply has since eased and we expect deliveries to pick up at a faster pace going forward. In FY18, electronics manufacturing services (EMS) sales was lower by 4.3%yoy to RM499.2m and sales of raw wire and cables segment was down marginally by 1.1% to RM121.0m. Meanwhile, the sales of wire harness segment increased by 24.4% to RM22.6m.

4QFY18 CNP shot up by 81.1%yoy to RM15.2m as revenue climbed 9.1%yoy to RM200.0m. The vast improvement can be attributed to the higher demand under the EMS division. The huge increase in CNP for the quarter can also be attributed to the shortage in component supply that started in FY17 and led to a surge in raw material prices in 4QFY17.

Sequentially, CNP added 7.5% as revenue improved by 14.6% due to the increase in demand for the EMS segment by its existing customers. The improvement is also a result of better operational efficiency as PIE managed to ramp up its production following the resolution of the component supply shortage.

FY19 prospects look brighter. Going forward, we expect growth to be driven mainly by higher demand for its EMS segment from both existing and new customers. We understand that the company is in talks in getting potential customers who look to diversify their manufacturing base as a result of the US-China trade war. In the meantime, the company has started production of certain low volume high margin products for its new customers.

Source: MIDF Research - 28 Feb 2019