PIE Industrial was poised for a stronger second quarter of Fiscal Year 2024 (2QFY24) as the Integrated Circuit (IC) supply shortage from Customer A had eased, while its production output ramped up using additional floor space from Plant 5. The company’s new server customer was on track for pilot production in the fourth quarter of Fiscal Year 2024 (4QFY24). It was also engaging a potential customer that could result in contracts with attractive margins, according to a report by Kenanga Investment Bank (Kenanga).
Kenanga maintained its forecasts for PIE Industrial, keeping the target price (TP) of RM6.75 and an OUTPERFORM call. The report highlighted PIE’s growth prospects and solid performance outlook.
Plant 5, fully dedicated to Customer A, has been in operation since June 2024, with plans for further floor space extension at the rear portion of Plant 5. This would increase its size by approximately 70% to around 170k square feet (sq ft) to meet future demand. Combined with the existing space allocated to Customer A in Plant 3, this represented a threefold increase in floor space to about 250k sq ft.
The additional space in Plant 5 was timely, as the IC supply constraint of Customer A had lessened compared to the first quarter of Fiscal Year 2024 (1QFY24) when production was limited to a third of the required orders. Consequently, production levels in 2QFY24 were higher.
PIE indicated that the status of its recently secured client, related to servers and switches for data centres, was progressing smoothly. It was on track to begin pilot production by 4QFY24, followed by mass production in 2025. This sizable client would take up the entire Plant 6, its latest and largest facility.
Upon a full ramp-up, Plant 6 would produce approximately one-third of the new customer’s global volume, positioning PIE as an excellent proxy for the data centre fit-out phase.
PIE showed no signs of slowing down and was in discussions with a potential new customer from China. This customer was considering picking PIE as its sole contract manufacturer. A deal was premised on PIE being able to improve its overall margins alongside boosting its revenue growth.
PIE’s value proposition came from its strong track record, making it a highly sought-after Electronic Manufacturing Services (EMS) vendor. This was especially significant amidst Chinese businesses stepping up their China Plus One initiative to pre-empt potential punitive US tariffs on Chinese imports.
The Bank kept its TP of RM6.75 based on FY25F Earnings Per Share (EPS) pegged to an unchanged Price to Earnings Ratio (PER) of 23.5x, in line with AI-related peers such as Natgate Holdings Berhad (NATGATE). There was no adjustment to the TP based on Environmental, Social, and Governance (ESG) given a three-star rating as appraised by the analyst.
Kenanga continued to favour PIE for its comprehensive skill set, making it a top-choice EMS provider for Multinational Corporations (MNCs). PIE enjoyed various competitive advantages as a unit of Foxconn and had a diversified and evolving client base, from those involved in communication devices and power tools to the latest Decentralised Finance (DeFi) equipment.
