KEY INVESTMENT HIGHLIGHTS

• 9MFY20 earnings missed expectation

• Sequentially, the group’s revenue doubled on the back of higher demand recorded under EMS activities

• EMS activities to steadily pick up in the long run

• Earnings estimates unchanged based on assumption that the earnings contribution from EMS activities will continue to grow in 4QFY20

• Maintain NEUTRAL with a revised TP of RM1.98

9MFY20 earnings missed expectation. P.I.E. Industrial Berhad’s (PIE) core net profit (CNP) of RM20.3m came in below our expectation, accounting for 60.0% of full-year estimate. To note, we have excluded inventories written down and impairment losses in our earnings calculation.

9MFY20 CNP slumped by -24.5%yoy as revenue fell by -11.9%yoy to RM439.5m during the financial period. The decline in profit was mostly due to decreased orders received from existing customers for its products and services, triggered by the negative effects of the pandemic. The decline in revenue, however, was partially offset against lower administrative and distribution expenses.

Sequentially, the group’s 3QFY20 revenue surged by +104.2%qoq, on the back of higher demand recorded under EMS activities coupled with the group being able to clear their backlog during the quarter. The group’s CNP however, recorded an +11.7%qoq growth from RM8.6m in 3QFY19, as the increase in revenue were partially offset against lower gain from foreign currency translation as well as higher administrative and distribution expenses.

EMS activities to steadily pick up in the long run. We gather that PIE expects orders under EMS activities to increase in the long run due to its fully built up vertical integrated manufacturing facilities coupled with higher demands coming in from overseas customers as a beneficial result of the USA-China trade war. Note that sequentially, the EMS division had contributed to a +46.7%yoy growth in revenue this quarter as compared to 3QFY19. With the division started production at full capacity in 3QCY20, we view this as a new chapter for the group where we foresee the revenue contribution from the segment to continue to grow, supporting the financial performance of the group moving forward. Our outlook, however, is clouded by any global development of Covid-19, disruption in the supply chain, and wild fluctuations in foreign exchange rates

Source: MIDF Research - 23 Nov 2020