KUALA LUMPUR: Kenanga Research maintained outperform on PIE Industrial Bhd
with an unchanged target price of RM2.10, underpinned by better earnings visibility in 2018.
The research firm said the counter's undemanding valuation with price-earnings of 11.4x vis-a-vis its EMS peers' 14x price-earnings offers an attractive entry level.
It said the group's core net profit was impacted by forex exchange and high material costs despite achieving record revenue in FY17.
"For FY18/FY19, we have conservatively assumed RM3.90/USD as the new base case. Based on our sensitivity analysis, every 1% fluctuations in the USD from our new base case assumption of RM3.90/USD will impact Fwd. NP by c.2%.
"After a series of hiccups over the past few quarters, i.e. components shortages, limited labour resources, and client’s technical glitches on new system adoption alongside stringent impairment policy, the group is set to sail a smoother 2018 with the above issues now being resolved."
Kenanga Research said management noted that order visibility and hit rates are better due to the consistent delivery of good products quality and advanced manufacturing capabilities that appeal to customers with more advanced products.
The group is expected to secure voluminous contracts in the industrial printing and production as well as medical segment.
"As these two contracts involve more complicated manufacturing processes, we believe that the margins
should be higher and hence, should be able to help the group to weather through the weaker dollar (or stronger ringgit) environment.
"Based on our estimates, should these two contracts be secured timely mass production should be seen in 3Q18 onwards with full earnings contribution in FY19. All in, this should comfortably support our 2-year revenue/CNP CAGR of 17%/23%."
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