MIDF Research retains neutral on PIE Industrial, TP RM1.20

MIDF Research said as movement restrictions have eased further since June, PIE Industrial is now running their production at full capacity as their workforce has increased back to pre-MCO level.

KUALA LUMPUR: MIDF Research is maintaining its neutral outlook on electronics manufacturing services (EMS) company PIE Industrial Bhd with a target price (TP) of RM1.20.

It said on Monday its TP is premised by pegging its FY20EPS of 8.79 sen to price-to-earnings ratio (PER) of 13.7 times (from previous 13 times) which is about one time standard deviation 1.0 time premium to the group’s two-year historical average.

The research house estimated PIE’s dividend yield at 3.6% and it expected the group’s healthy cash balance of about RM155.6mil as of end-June will be able to assist the group to overcome any short-term headwinds

To recap, PIE’s core net profit (CNP) of RM8.63mil came in below both its and consensus expectations, accounting for only 30.0% and 41.6% of full year estimates respectively.

MIDF Research excluded inventories write-down and impairment losses of RM9.2mil in the CNP calculations. Profit before tax remains in the red at RM420,00 as revenue fell by 38.3% on-year in 2Q20.

“The group’s dismal financial performance was mainly attributable to the Covid-19 pandemic in which has triggered a sudden drop in customer demand for its products and services.

“Plus, the group was only able to restart their production in May with a low efficiency rate due to lack of workforce.

“Sequentially, the losses showed slight improvement from -RM1.83mil in prior quarter due to higher demand recorded for EMS but were partly offset by lower revenues registered from the remaining divisions, ” it said.

MIDF Research said as movement restrictions have eased further since June, PIE is now running their production at full capacity as their workforce has increased back to pre-MCO level.

“While we are also aware that the management expects operation to continue at full capacity in order to clear backlogs, some of the challenges to be considered would be labour shortages and disruption to their supply chain due to prevailing lockdowns in some of the suppliers’ countries.

“Taking all these into consideration, we anticipate the accumulated earnings for FY20 to drop but cautiously optimistic that recovery would ensue through FY21, ” it said.

The research house noted that the management expects orders under EMS activities to increase in the long run due to its fully built up vertical integrated manufacturing facilities coupled with more demands coming in from overseas customers as a beneficial result of the US-China trade war.

It expected the EMS segment can help to partially cushion the weaker financial performance of the other segments. The risks to its outlook include any global development of Covid-19, disruption in supply chain, and wild fluctuations in foreign exchange rates.

“Factoring in the below-than-expected earnings this quarter, we are revising downward our earnings estimates for FY20E/FY21F/FY22F to RM33.7mil, RM37.4mil and RM43.4mil respectively.

“We also took a more conservative view on the dividend payout and trimmed our FY20E DPS to five sen from six sen, ” it said.

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