PIE earnings expected to pick up in 2H19 to make up for 1Q19 shortfall

TheEdge Thu, Mar 07, 2019 11:01am - 5 years View Original


PIE Industrial Bhd
(March 6, RM1.65)
Maintain outperform with a target price (TP) of RM1.90:
The group is unlikely to face issue with component shortages in 1H19 as it has already stocked up for three months ahead (versus usual practice of one-two months). However, management cautioned the possibility of the issue resurfacing in 3Q, should the adoption of 5G gain momentum. We believe that the management would be more prepared this time, with better raw material management.

 
Due to a shift in a new customer’s supply chain motivated by the US-China trade war, the group has engaged the former and started its maiden telecommunications device with its first shipment completed, while its second shipment close behind.

The management expects the contribution of its maiden telecommunication device to become meaningful by the end of 3Q19.

We understand that the end-customer is a major retail name, from which the group has already obtained three certifications, which could usher in additional contracts.

The group is currently working with its direct customer to develop a new audio-related accessory to be integrated into the abovementioned telecommunications device to be sold as a premium product.

Apart from this, we have also gathered that another new customer has engaged the group to manufacture printed circuit board assembly for its white goods on a consignment basis. We are upbeat about the group’s medium-term prospects given the slew of new customers in the pipeline.

While 1Q19 is likely to be a weaker quarter on seasonality and higher start-up costs for its new products, we expect earnings to pick up in 2H19 to make up for the shortfall  premised on: (i) seasonal ramp-up alongside higher allocation from its telecommunications customer; ii) mass production of its new products (industrial printing and production and medical segment) with full-year earnings contribution in FY19; (iii) contribution from its maiden telecommunications device from end-3Q19 onwards; and (iv) steady growth from its existing key customers. The above mentioned should be able to comfortably support our estimated two-year revenue/core net profit compound annual growth rate of 11%/15%.

Making no changes to our FY19-20E earnings, we maintain our “outperform” call with an unchanged TP of RM1.90 based on (14 times FY19E PER).  — Kenanga Research, March 6

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