The research house upgraded the stock to "outperform" as it raised earnings forecasts for FY20/FY21 by 21%/19% to RM23.6mil/RM66.5mil as it anticipated continuing recovery momentum with strong contribution from the customer.
Its fair value on stock rose to RM3.30 from a previous target of RM2.32 based on a valuation of 19x forecast FY21 price-earnings, up from 16x previously.
According to Kenanga, PIE currently supports 20% of the customer's global volume, which is currently at 80% run rate, and is negotiating 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
"We are expecting earnings to record QoQ growth in 4QFY20 as well as in 1QFY21," it said.
Kenanga added that the customer, which is a major name in the entertainment industry, has been experiencing very strong global demand due to the current work-from-home trend.
"With countries facing a resurgence of Covid-19 cases and the UK recently re-imposing lockdown restrictions, we believe the entertainment device will continue to be highly sought after.
"We are upbeat over the group’s medium-term prospects given the slew of new products from existing customer in the pipeline," it said.
PIE Industrial has maxed out its current capacity and is in the midst of acquiring a new plant. Its renovations are aimed to be completed by 3QFY21.
The plant will contribute about 50% increase in floor space, which will enable the group to take on more orders from existing and new customers.