PIE Industrial Bhd
(April 11, RM13.12)
Initiate coverage with a target price of RM14.55: PIE Industrial Bhd (PIE) is a Penang-based electronics manufacturing services (EMS) provider.
It has remained profitable ever since it was listed and achieved a 14-year net profit compound annual growth rate (CAGR) of 14%, overcoming the ups and downs of several challenging economic cycles.
Besides its vertically integrated services, which provide higher profitability than other EMS players, we understand that the constant improving customer strike rate has also been a major success catalyst.
From our latest information gathered, we understand that the hit rate has now improved to as high as 6/10 from 1/10 previously, thanks to its enhanced capabilities.
Following its recent major transformation, the group has managed to secure a new European customer, who is a global player in industrial electronics.
Although earnings contributions from this customer are currently at less than 5%, we gather that more orders are likely to come going forward, which could turn it into a major customer for PIE given its competitive pricing and its top-class manufacturing capabilities.
PIE’s ultimate major holding company, Hon Hai Precision Industry Co Ltd or Foxconn Technology Group which is in turn holding at least 20% of Pan-International Corp, is one of the most preferred names in EMS to global computer, communication and consumer electronics leaders.
Notable products that the company manufactures include such brands as BlackBerry, iPad, iPhone, Kindle, PlayStation, Xbox One, Nokia, Xiaomi and Wii U.
Given PIE’s close proximity to the above-mentioned tech giants, not only that PIE can tap its parent’s first-class engineering and manufacturing capabilities, it could also leverage Foxconn’s huge purchasing power in terms of raw materials and manufacturing equipment.
This helps to explain the higher margins enjoyed by PIE compared with other EMS players.
We are projecting the group to register core net profits of RM65.5 million and RM74.4 million in financial year 2016 (FY16) and FY17 respectively, to be backed by a two-year revenue CAGR of 11%.
This is mainly underpinned by more orders from its telecommunication customer, box build businesses from its set-top box customers, increasingly higher orders from its new European customer and net profit margin assumptions of 8.9% to 9.1% for FY16 and FY17, backed by an assumption of RM4.10 per US dollar. — Kenanga Research, April 11
PIE (7095) - PIE’s vertically integrated services provide higher profitability than peers’
http://www.theedgemarkets.com/my/article/pie%E2%80%99s-vertically-integrated-services-provide-higher-profitability-peers%E2%80%99
