Expansion and demand to sustain PIE Industrial growth, say analysts

PETALING JAYA: PIE Industrial Bhd (PIE) is projected to sustain earnings growth on the back of capacity expansion plans and strong demand from new and existing customers.

RHB Research said factors like the structural demand for consumer electronics products, the gross domestic product target for Malaysia’s electrical and electronics industry in the 12th Malaysia Plan, and the prolonged Us-china trade war, makes PIE well-positioned to see a rise in profits from 2022 to 2023 (FY22 to FY23).

“Orders from existing customers remain robust, in tandem with the demand for electronics manufacturing services, of which the global market size is expected to grow to Us$797.9 bil (RM3.6 trillion) in 2029, from Us$504.22 bil (RM2.2 trillion) this year,” RHB Research said in a report on PIE yesterday.

It added the Us-china trade war has benefitted the electronic manufacturing services company in securing new customers and prompted several Chinese companies to relocate their operations overseas.

“PIE secured Customer R (for consumer robotic products) in the fourth quarter of 2021 (4Q21), and a Chinese supercomputing cloud customer (Customer A). Customer A has identified the group as its preferred Malaysia vendor, which is testament to its capability to handle the manufacturing complexity required,” said RHB Research.

The research house expects PIE to book higher margins on the back of full-year revenue recognition from its new customers in FY22.

It added the company is not affected by the current supply chain disruption faced by its peers as it leverages on Foxconn’s (parent company) large purchasing power for raw materials and manufacturing equipment.

The strong demand fuelled the group’s plans to expand its floor space to accommodate new projects. PIE owns seven factories, but currently fully occupies four of them.

The group took back its fifth facility which was leased out to meet the orders from Customer A.

Its fifth and sixth factories are expected to commence operations by 4Q22 after renovations on these factories are completed. Additionally, the leasing out of the group’s seventh factory will come to an end in February 2023.

“The addition of these two factories is expected to bring about a 25% increase in space capacity for PIE. This, coupled with its margin growth and net cash position, compels us to believe its one-year forward price to earnings ratio of 14 times is attractive, versus the peer average of 17.7 times,” said RHB Research.

On the issue of labour, PIE has received approval for a few hundred foreign workers who will come in in batches until September.

“This is sufficient to fuel its growth plans for FY22,” said the research house.

RHB Research maintained a fair value of RM4.20 on PIE Industrial which is 25% higher than its current market price of RM3.37, supported by a three-year compound annual growth rate of 21.1%.