Kenanga Research said the expansion is well-timed.
PETALING JAYA: Electronics manufacturing services (EMS) firm PIE Industrial Bhd
is on track to commence mass production services by 2025 for a recently secured client.
Kenanga Research in a report said the client, which is related to servers and switchers for data centres, will occupy the entirety of PIE’s Plant 6, the group’s latest and largest facility (measuring 280,000 sq ft).
“PIE is planning to start with assembly services first, but will eventually move to higher margin surface mount technology (SMT) production thereafter.
“Upon a full ramp-up, Plant 6 will produce approximately one-third of the new customer’s global volume,” Kenanga Research said in a report yesterday.
The research house noted that PIE has continued to expand its floor space to accommodate the growing demand from “Customer A”.
“Since June 2024, the group has fully dedicated Plant 5 (about 100,000 sq ft) to Customer A and plans to extend it by another 70,000 sq ft at the rear to meet demand.
“Combined with the fully utilised Plant 3 (around 80,000 sq ft), this represents a three-fold increase in floor space to about 250,000 sq ft.”
Kenanga Research said the expansion is well-timed, as the easing of the integrated chip (IC) shortage is expected to result in stronger sequential performance with loading volumes for Customer A moving towards optimal levels.
“Notably, PIE’s net profit for the second quarter of financial year 2024 surged 78% quarter-on-quarter despite flat revenue, mainly due to improved IC supply from Customer A.
“The project operates on a consignment basis, where Customer A supplies all materials and PIE handles the SMT process and final assembly. As a result, while revenue may appear modest, the impact on the bottom line is significantly more pronounced.”
Kenanga Research said PIE is currently rationalising its operations by reducing orders from lower-margin customers to allocate capacity and resources for higher-margin clients.
“Additionally, it is actively engaging in discussions with several potential new customers in the automotive, robotics, medical and telecommunications sectors.
“We have yet to impute any expectations in our earnings model. We believe PIE’s value proposition lies in its strong track record positioning it as a highly sought-after EMS vendor, especially as Chinese businesses accelerate their China+1 strategy to mitigate potential punitive US tariffs on Chinese imports.”
Kenanga Research, which has lowered its target price for PIE to RM6.35 (from RM6.75 previously), said it liked the company for its comprehensive skill set, making it a top-choice EMS provider for multinational companies.
It also said it liked the company for the various competitive advantages it enjoys as a unit of Taiwan-based Foxconn, as well as its diversified and evolving client base.
