KUALA LUMPUR (Jan 6): PIE Industrial Bhd (KL:PIE) is seen as a major beneficiary of global supply chain shifts and technological trends, according to Maybank Investment Bank.

The house noted that as an electronic manufacturing services (EMS) provider, PIE is poised to benefit from new sources of earnings growth.

These include higher order volumes driven by trade diversion trends, increased demand from its key supercomputer customer, the acquisition of a new customer in the switches and server market and the expansion of its production capacity.

"The group is also expanding capacity to meet the demands of its supercomputer client. We expect the servers and supercomputer segments to be key growth drivers, contributing about 55%-60% of revenue in 2025-27," according to Maybank, which initiated coverage on PIE with a "buy" rating and target price of RM7.50.

The house noted also that PIE has benefited from global trade tensions, achieving a 26% earnings average annual growth over 2019-23.

"With escalating US-China tensions, we expect the trend of production shifts to Southeast Asia, including Malaysia, to continue," said Maybank.

Looking ahead, PIE is expected to sustain an earnings compounded annual growth rate (CAGR) of 16% over 2023-2027E, driven by higher order volumes and diversification into new markets.

Despite a projected temporary decline in revenue in 2024 due to order reductions, the company is set to rebound strongly in 2025 with anticipated revenue growth of 71% year-on-year, the house noted.

The diversification into higher-margin segments like supercomputers is expected to cushion the impact of thinner margins from the switches and server segment.

Maybank highlighted that PIE reinvested 5% of its revenue over the past five years into capital expenditure.

With additional capacity to drive earnings, the expansion of Plant 5, slated for completion by 3Q25, will add 85,000 square feet to its manufacturing footprint, further solidifying its ability to meet rising customer demand.

However, Maybank cautions that PIE’s growth trajectory is not without risks.

Revenue concentration remains a significant concern, with the top two customers contributing 67% of total revenue in 2023.

That said, the new switches and server client is expected to help mitigate this risk, by contributing over 40% of revenue by 2025.

Labour shortages and fluctuations in the USD/MYR exchange rate pose additional challenges.

At the time of writing, PIE shares gained 13 sen or 2.1% to RM6.20, valuing the group at RM2.38 billion.