Kenanga upgrades PIE Industrial to 'outperform', raises target price to RM3.30

TheEdge Fri, Jan 08, 2021 11:25am - 3 months ago

KUALA LUMPUR (Jan 8): Kenanga Research has upgraded PIE Industrial Bhd to outperform from market perform, and raised its target price to RM3.30 (from RM2.32), to reflect improving prospects and the inclusion of a new customer.

Kenanga analyst Samuel Tan said in a note today the upgrade was due to positive feedback in a meeting with management, premised on stronger prospects from a new customer’s entertainment device.

Following the meeting, he has also raised his earnings forecasts for the group for FY20 and FY21 by 21% and 19% to RM23.6 million and RM66.5 million as he expects the recovery momentum to continue along with strong contribution from the new customer.

“Due to a shift in a customer’s supply chain motivated by the US-China trade war, the group has engaged a new customer who intends to diversify from China and started production of the entertainment device.

“The delivery of the first batch had been completed with the second batch close behind,” he said.

According to Tan, PIE currently supports 20% of the customer’s global volume, and is in negotiation to increase it further to 40%.

“Maiden contribution from this entertainment device has been mildly reflected in 4QFY20 with more meaningful earnings to be seen in 1QFY21 and beyond.

“We are expecting earnings to record quarter on quarter growth in 4QFY20 as well as in 1QFY21,” said Tan.

Tan said he was given to understand that the customer is a major name in the entertainment industry, which could usher in additional contracts.

He said, the current entertainment device in production has been experiencing very strong demand globally and is often sold out owing to the work-from-home trend.

With countries facing a resurgence of Covid-19 cases and the UK recently re-imposing lockdown restrictions, he believes the entertainment device would continue to be highly sought after.

“We are upbeat over the group’s medium-term prospects given the slew of new products from existing customers in the pipeline,” said Tan.

Meanwhile, according to Tan, the group’s current capacity is filled to the brim and it is in the midst of acquiring a new plant (about 80,000 square feet) and will be renovating it to increase another 70,000 sq ft, aimed to be completed by 3QFY21.

“In total, the 150,000 sq ft will contribute about 50% increase in floor space, enabling the group to take on more orders from existing customers, as well as new customers,” he said.

At the time of writing, PIE fell 9 sen or 3.14% to RM2.78, valuing the group at RM1.09 billion.

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