KUALA LUMPUR (Jan 28): The selling pressure on PIE Industrial Bhd (KL:PIE), leading to the stock hitting a nine-month low, has been attributed to an overreaction by the market, according to Kenanga Research, given the company's resilient business model and growth drivers.

Kenanga said PIE’s prospects remain robust, supported by its role in supplying switchers required in graphics processing units (GPUs) and central processing units (CPUs).

“We believe there is overreaction… in terms of the stock price as we regard its business as less affected, with PIE’s growth driven by the supply/manufacture of switcher required in both GPUs and CPUs,” Kenanga said in a note on Monday.

Shares of PIE Industrial have dropped over 24% since the start of 2025. At market close on Tuesday, the stock settled by 10 sen or 2.14% lower at RM4.57, its lowest since April 17, 2024.

Market worries stem from recent US restrictions on AI chip exports and the emergence of Chinese open-source large language model (LLM) provider DeepSeek.

DeepSeek, which operates without relying on the most advanced AI chips, has challenged assumptions about the necessity of advanced chips for all AI models. This has triggered a selloff across companies in the data centre and AI supply chain.

Among four analysts tracking PIE Industrial, three are still bullish and have assigned a "buy" call, while Affin Hwang Investment Bank has issued a "hold" call.  The consensus 12-month target price stood at RM6.74, implying potential upside gain of 47% from the last traded price.

Maybank Investment Bank (Maybank IB) in a separate note cautioned that PIE Industrial may face weaker-than-expected fourth-quarter earnings for FY2024 due to material shortages affecting its supercomputer customers.

These issues have constrained the timely testing and delivery of components required for the launch of the company's new products in order to maintain market leadership, the research house said.

“Supercomputer customer’s orders are expected to decline in 4Q2024 due to material shortages, but orders have rebounded in January 2025,” the research house said while maintaining its “buy” call, with an unchanged target price of RM7.50. 

Maybank IB slashed its FY2024 earnings forecast for PIE Industrial by 8% to reflect the temporary order weakness, but left its 2025–2026 earnings estimates unchanged. The research house noted that the company server qualifications are ongoing, with updates anticipated as early as February 2025.

Maybank IB noted that PIE Industrial is onboarding a new customer for switches while discussions with potential clients remain ongoing, including a Japanese customer and a Mexican client seeking to relocate production as part of a diversification strategy.