P.I.E. Industrial To See A More Robust Second Half

Revenue was higher at RM563.3m (+13.0%yoy) thanks to the orders from its 2 newly acquired customers – Customer R (consumer robotics products) and Customer A (cryptocurrency mining equipment).

P.I.E. Industrial To See A More Robust Second Half

P.I.E. Industrial Bhd reported core PAT of RM26.7m in 1HFY22 which made up 39% of ours and 35% of consensus full-year estimates respectively.

"We deem this to be well within our expectation as we are expecting a stronger 2HFY22.

"PIE’s core PAT of RM7.9m (-44.5%yoy) in 2QFY22 took a dip despite recording higher order volume mainly due to higher labour cost following the increment in minimum wage and provision for slow moving inventories.

"The effective tax rate was also higher at 36.1% (2QFY21: 22.4%). On a quarter-on-quarter basis, core PAT declined by -58.0%qoq attributable to similar reasons," says MIDF.

The research firm also says for the 6-month period, core PAT was flat at RM26.7m (+0.3%yoy) despite 2QFY22 being weaker as 1HFY21 was a low base due to the 60% workforce restriction during MCO 3.0 in Penang.

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However, revenue was higher at RM563.3m (+13.0%yoy) thanks to the orders from its 2 newly acquired customers – Customer R (consumer robotics products) and Customer A (cryptocurrency mining equipment).

Outlook

"We expect 2HFY22 to be more robust with the recruitment of new foreign workers and the commencement of operations of its new 120k sq ft plant. Despite getting the approval for lower number of foreign workers than requested,

"PIE is confident that it would be sufficient to stabilise its production activities and support its growth plan in the near- term. The recruitment process has started and is expected to be completed by end-August."

The company’s earnings would be driven by its factory capacity expansion plan which is being fueled by strong demand from its existing and newly acquired major customers as it is almost fully utilising its existing capacity. We are looking at an additional c.25% in capacity in the coming quarters.

Maintain BUY

"We maintain our BUY call on PIE with a higher TP of RM3.86 (from RM3.45) as we rollover our base year to FY23F pegged to an unchanged PER of 19x.

"Our valuation represents a slight premium to its peers’ forward average PER of 18x, but we believe it is justified given its ability to leverage on Foxconn’s purchasing power and its strong customer base which allows for margin expansion.

"Downside risks include: (1) inability to fulfill orders due to any delays in its expansion plan and labour shortage and (2) loss of orders from its major customers," says MIDF.