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PIE Industrial: Short-Term Headwinds, Long-Term Growth Potential in Electronics Manufacturing









PIE Industrial: Comprehensive Company Analysis and Sector Outlook

PIE Industrial: Comprehensive Company Analysis and Sector Outlook

Prepared by Maybank Investment Bank Berhad

Date: January 27, 2025

Overview of PIE Industrial

PIE Industrial Berhad is a prominent provider of one-stop electronics manufacturing services (EMS) catering to a diverse range of industrial applications. Headquartered in Malaysia, the company has positioned itself as a key player in the technology sector, known for its consistent performance and strategic adaptability.

Short-Term Challenges and Promising Long-Term Prospects

Despite facing short-term headwinds, PIE Industrial’s long-term growth outlook remains robust. The company is expected to face a weaker Q4 2024 due to material shortages impacting its supercomputer customer. However, the rebound in orders anticipated in January 2025 underscores resilience in its business operations. Management’s optimism is further supported by ongoing server qualifications, with results expected as early as February 2025, and the onboarding of new customers for switches, including a Japanese client and a Mexican customer seeking production diversification.

Server Qualifications and New Opportunities

PIE Industrial has made significant strides in server qualifications, with results anticipated in February 2025. These qualifications are pivotal for securing server orders in 2025, although potential tariffs could pose challenges. The company is also focusing on switches, a segment that offers more favorable margins. Discussions with a new Japanese client and advanced negotiations with a Mexican client showcase PIE’s ability to diversify and expand its customer base.

Supercomputer Orders: Recovery in Sight

Material shortages have temporarily hindered orders from PIE’s supercomputer customer in Q4 2024. However, these orders are expected to recover in January 2025 as the customer works to maintain its market leadership by launching new products. Addressing these material issues remains a critical challenge for PIE, but the company is well-positioned for recovery.

Financial Performance and Valuation

PIE Industrial’s financial performance reflects resilience despite short-term challenges:

  • 2024 Earnings Revision: Earnings for FY24E have been revised downward by 8% due to weaker supercomputer orders. However, FY25E and FY26E forecasts remain unchanged.
  • Target Price: The target price remains at MYR7.50, implying a 61% upside from the current share price of MYR4.67. This valuation is based on a 25x PE multiple on 2026E EPS, which is 2 standard deviations above its 5-year forward mean.
  • Key Risks: Risks include weaker demand, high customer concentration, and labor shortages.

Key Financial Metrics

PIE Industrial’s core financial metrics highlight its growth potential:

  • Revenue Growth: Revenue is expected to grow significantly, from MYR980 million in FY24E to MYR1,710 million in FY25E and MYR2,168 million in FY26E.
  • Core Net Profit: Core net profit is projected to rebound strongly, from MYR63.6 million in FY24E to MYR93.8 million in FY25E and MYR115.2 million in FY26E.
  • Dividend Yield: Dividend yield is expected to improve, reaching 2.1% in FY25E and 2.6% in FY26E.
  • Profit Margins: EBITDA margins are projected at 8.0% and 7.8% for FY25E and FY26E, respectively.
  • Net Cash Position: PIE Industrial is expected to maintain a net cash position through FY26E, further strengthening its financial stability.

Valuation and Recommendation

Maybank Investment Bank Berhad reiterates a BUY recommendation for PIE Industrial. The target price of MYR7.50 reflects a significant upside potential of 61% from the current price. This valuation is supported by robust long-term growth prospects and strategic initiatives aimed at diversifying the customer base and improving profit margins.

Conclusion

PIE Industrial stands out as a resilient player in the EMS sector, navigating near-term challenges while positioning itself for substantial long-term growth. With a strong focus on server qualifications, switches, and customer diversification, the company is set to capitalize on emerging opportunities in the technology sector. Investors are encouraged to consider the promising upside potential, supported by PIE Industrial’s robust financial outlook and strategic initiatives.


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