KEY INVESTMENT HIGHLIGHTS

• 9MFY19 earnings within expectation

• YTD earnings jumped 19.4%yoy to RM26.8m

• 3QFY19 core earnings rose 28.5%yoy to RM18.4m

• Huge quarterly sequential improvement

• Maintain BUY with an adjusted TP of RM1.60 (previously RM1.27)

9MFY19 earnings within expectation. P.I.E. Industrial Bhd’s (PIE) cumulative core net profit (CNP) of RM18.1m was largely within ours and consensus’ full year estimates at 71.3% and 69.9% respectively. We have excluded net addition of impairment losses and net reversal of inventories written down in 3QFY19 amounting to -RM1.36m from the CNP.

YTD earnings jumped 19.4%yoy to RM26.8m as revenue climbed by 8.1%yoy to RM498.7m. Overall, improvement can be attributed to its manufacturing segment which saw a 10%yoy improvement in sales mainly due to higher orders from its existing and new customer. This was driven by its electronics manufacturing services (EMS) division and wire harness products, which was partially offset by the lower raw wire and cable products and trading segments. PBT margin for the nine months registered 6.6% compared to 5.8% a year because of lower administrative and distribution expense, higher forex gain and higher income from other investment.

3QFY19 core earnings rose 28.5%yoy to RM18.4m although revenue declined by 4.6%yoy to RM166.5m. The improvement in bottomline can be attributed to lower administrative and distribution expenses, higher gain from forex and higher income from other investment.

Huge quarterly sequential improvement. Sequentially, CNP more than doubled from RM8.1m in 2QFY19 even as revenue slipped by 7.8%qoq. The improvement can be attributed to forex gain, and higher income from other investment, recovery in margins and better product mix. Compared to 2QFY19, PBT margin for the quarter has improved by 8.8ppt to 13.6%, which exceeded that of 4QFY18. We believe that its 4QFY19 PBT margin should also remain positive as the high volume, low margin project taken on earlier comes to a tail-end while its other more profitable projects continues to ramp up.

Maintain BUY with an adjusted TP of RM1.60 (previously RM1.27) as we roll over our base year to FY20F. We make no changes to our earnings forecasts considering results that are in-line. Our new TP is derived from 13x PER FY20F EPS of 12.31 sen. We think that PIE will be able to achieve growth in the coming year due to the improvement in operational efficiency while the company continues to work with existing and new customers on projects to further grow its topline. Valuation is considerably attractive at the moment, which is lower than other EMS players that trade at 14x-16x. Moreover, the company’s balance sheet remains heathy with a net cash of RM115.8m. This will enable the continuation of its decent dividend yield that is expected at 4.1%.

Source: MIDF Research - 18 Nov 2019