PIE’s 9MFY17 earnings below expectations due to prolonged shortages

KUCHING: PIE Industrial Bhd’s (PIE) core profit for the first nine months of financial year 2017 (9MFY17) have come in below expectations thanks to a prolonged shortage in raw materials that have caused the group lower gross profit margins and lower production efficiency.

In a results review, the research arm of MIDF Research pointed out the 9MFY17 core profit had surged by +88.2 per cent year over year ( y- o- y) to RM24.2 million.

This was due to contribution from new contracts accompanies by favourable exchange rates, higher scrap sales and reversal of slow moving inventories in the previous quarters.

However these improvements had already been accounted for and unexpected drag from raw material prices and availability caused the group’s 9MFYq7 core profit to only meet 64 and 58 per cent of MIDF Research’s and consensus’ full year forecasts.

Year over year (y-o-y), the net profit in the third quarter of FY17 (3QFY17) saw a -59.4 per cent decrease.

While a one-off bad debt provision in the third quarter of FY17 (3QFY17) of RM11.2 million had contributed to this, the research arm affirmed that the lower than expected earnings were due to higher operating expenditure due to raw material costs and fixed costs.

With no reprieve in sight yet for the shortage of raw materials, MIDF Research is reducing its FY17- 18F earnings for the group by -11.8 and -13.5 per cent respectively.

“We reduce our earnings estimates to RM49.0 from RM55.6 million in FY17F and RM55.2 from RM63.8 million in FY18F, as we factor in lower sales and higher raw material costs.

“We have also reduced our sales forecast in FY17F and FY18F by -7.6 and -12.9 per cent to RM664.3 and RM730.8 million. This is in anticipation of slower delivery largely due to the shortage in raw material supply,” guided the research arm.

With the revised earnings estimates in mind, MIDF Research is maintaining its ‘Neutral’ rating on the stock with a lowered target price of RM2.16 from RM2.49 previously.

“We are neutral on the stock as its FY17 net profit, estimated at RM49.0 million, is unlikely to match its previous record high of RM57.6 million made in FY15.

“However, its balance sheet is still sturdy with a net cash of RM79.8 million and we expect the company to pay out 50 per cent of tis profit as dividend, which will translate into a decent yield of 3.5 per cent.”

With that said, PIE’s dividend per share estimates from MIDF Research are now at 6.4 and 7.2 sen in FY17F and FY18F.