Despite recent softness in the decentralised finance (DeFi) space, orders for ASIC hardware from its new Chinese customer as well as other products from its customer base have remained robust attributable to (i) the ASIC hardware customer is pushed to relocate out from China, (ii) PIE is the preferred vendor in Malaysia that can handle the manufacturing complexity required, and (iii) PIE is able to leverage on the purchasing power of its parent company, Foxconn to ensure component supply. BUY with a TP of RM4.10 pegged to an unchanged PER of 18x. Our valuation represents a slight premium to peers’ forward average of 16.5x, justified by its strong clientele which allows for margin expansion despite an inflationary environment.

We learnt that orders from its newly secured Chinese customer (relating to ASIC hardware) remain robust as we observed buzzing manufacturing lines with highly dense workstation arrangement during our visit. Being pushed to relocate out from China and identifying PIE as the preferred local vendor that has the capability to handle such complex manufacturing requirements explains the strong order pipeline despite the temporarily dampened sentiment in the DeFi space.

Against the backdrop of rising inflation and the general market fear of margin compression, we take comfort in knowing that PIE will still be able to maintain or even potentially grow its margins as the group is fortunately able to leverage on Foxconn’s purchasing power and engineering expertise in streamlining its operation to reduce waste and improve yield.

Another positive development is the approval for foreign worker recruitment. While only receiving approval for a couple hundred workers (vs. application for 1,000 workers), the group believes that this would be sufficient to fuel its growth plan for FY22 and FY23. We understand that this is a common allocation practice as that many EMS companies also received lower number of workers than requested. PIE will conduct the recruitment in batches and complete the entire process by August.

Source: Rakuten Research - 12 Jul 2022