Sunday 19 May 2024
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KUALA LUMPUR (April 19): PIE Industrial Bhd, whose share price extended its rally to a new all-time high on Thursday on reports that it has secured a new customer, confirmed the matter and said it is expecting the new customer to contribute an additional RM2.5 billion revenue to the group, of which RM1 billion will be recognised as early as next year.

The client specialises in servers and switches, the group's managing director Alvin Mui told The Edge, but did not disclose its identity. Contract manufacturers typically do not identify their clients due to confidentiality agreements to protect manufacturing processes.

“This customer should contribute about RM1 billion in revenue for 2025 and RM1.5 billion in revenue for 2026. It should represent more than 50% of the group’s total revenue. We are optimistic of achieving RM2 billion (total) revenue in 2025,” Mui said.

It is unclear what the profit margin will be like. The company's gross profit margin stood at 7.03% in FY2023, slightly lower than the 8.14% it recorded in FY2022.

PIE Industrial's yearly revenue, which stayed around RM650 million a few years earlier, breached RM1 billion in FY2021 when it hit RM1.03 billion, and continued to climb to RM1.17 billion in FY2022 and RM1.22 billion in FY2023. The group made a net profit of RM75.41 million in FY2023, up 6.42% from RM70.86 million in FY2022 as it received more orders from its customers in the electronic manufacturing services (EMS) segment.

Earlier on Thursday, Kenanga Investment Bank wrote in a note that PIE had secured, via referral from a key shareholder, a new sizeable AI server client that would take up its entire Plant 6. One of three analysts covering the stock, Kenanga said PIE would be the new customer's sole contract manufacturer outside China.

Mui, who also confirmed that PIE's 280,000-sq-ft Plant 6 will be allocated entirely to the new customer, said pilot production is scheduled to commence by the end of 2024, while mass production is slated to begin in 2025.

PIE has also decided to expand the capacity of its Plant 5 to 180,000 sq ft from its original 100,000 sq ft, to meet an anticipated increase in orders from an existing client who is already taking up the entirety of Plant 3, he said. This new plant, which is slated to commence production in June, will also be dedicated to serve this existing customer.

With the tweak in its expansion plans, Mui said the group is now estimated to spend 30% more than its initial allocation of RM50 million to RM60 million. The group spent RM45.24 million for capex in its FY2023 ended Dec 31, 2023, according to its latest annual report.

The group's focus now is to ensure the successful launch of production under the new plants. So, it is too soon to consider further expansion plans, Mui said.

"The current (US-China) geopolitical tension is beneficial to the EMS industry in Malaysia, as we provide a good alternative manufacturing option for those intending to move their operations out from China. PIE has also received increased new business enquiries," Mui said.

The recent copper price rally has also been good for the group, which also produces raw wire and cables, as customers are loading up on their orders to avoid price hikes, said Mui, adding the group is adjusting its selling prices monthly, to follow the latest copper prices.

On Thursday, the three-month copper futures hit a 21-month high of US$9,582.50 per tonne on the London Metal Exchange (LME).

Shares of PIE surged by as much as 20.65% or RM1.02 to RM5.96 on Thursday, before closing at RM5.57 — still up 12.75% or 63 sen — after jumping 30% to hit limit-up on Wednesday. This pushed the group's market capitalisation up RM679.68 million over the last two days to RM2.14 billion.

Year to date, the counter has surged 71.4%, sharply outperforming its peers in the EMS segment.

Based on its closing price of RM5.57, the stock is trading at historical price-to-earnings (P/E) ratio of 29 times, based on its earnings per share of 19.16 sen in FY2023.  

Kenanga Research raised its net profit forecast for the group to RM110.3 million or 28.7 sen per share for FY2025. The stock is currently at a forward P/E ratio of 19.4 times, based on Kenanga Research's earnings forecast. Kenanga Research pegs its target price at RM6.75, at a P/E ratio of 23.5 times, as it believes the company's valuation deserves a premium for being an AI proxy.

Edited ByTan Choe Choe
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