PIE Industrial falls on lacklustre 3Q earnings

TheEdge Mon, Nov 23, 2020 10:58am - 5 months ago

KUALA LUMPUR (Nov 23): PIE Industrial Bhd fell as much as 13 sen or 6.07% to RM2.01 today, after the group announced a 31.05% drop in its earnings for the third quarter ended Sept 30, 2020.

At 10.22am, the counter pared some losses at RM2.05, still down 9 sen or 4.21%.

The counter, which was among the top losers this morning, saw 1.81 million shares changed hands.

For the third quarter ended Sept 30, net profit fell to RM12.03 million from RM17.45 million a year earlier.

MIDF Research said in a note today that PIE’s 9MFY20 core net profit of RM20.3 million came in below its expectation, accounting for 60% of its full-year estimate.

The decline in profit was mostly due to decreased orders received from existing customers for its products and services, triggered by the negative effects of the pandemic, it said.

Despite the lower-than-expected earnings this quarter, MIDF left its forward estimates unchanged based on assumption that the earnings contribution from electronics manufacturing service (EMS) activities will continue to grow, covering the shortfall in earnings.

“We gather that PIE expects orders under EMS activities to increase in the long run due to its fully built up vertical integrated manufacturing facilities coupled with higher demands coming in from overseas customers as a beneficial result of the US-China trade war,” it said.

It noted that sequentially, the EMS division had contributed to a 46.7% year-on-year growth in revenue this quarter.

The division started production at full capacity in 3QCY20. MIDF viewed this as a new chapter for the group where it foresees the revenue contribution from the segment to continue to grow, supporting the financial performance of the group moving forward.

“Our outlook, however, is clouded by any global development of Covid-19, disruption in the supply chain, and wild fluctuations in foreign exchange rates,” it said.

MIDF also took a more conservative view on the dividend payout and slashed PIE dividends estimate to zero on the assumption of cash prioritization.

It maintained its neutral call on PIE, but raised its target price (TP) to RM1.98 from RM1.20.

“Our TP is derived by pegging its unchanged FY20 earnings per share of 8.79 sen to a price to earnings ratio of 22.5 times (previously 13.7 times) which represents PIE's two-year historical average.

“We raised our target valuation in view of positive outlook on EMS activities. The group’s net cash of RM141.9 million as of end-September will be able to assist the group to overcome any short-term headwinds,” it said.

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