PIE 7095 P.I.E. INDUSTRIAL BERHAD – Another record-breaking year ahead?
An update on PIE’s FY2021 full-year and its latest quarter (1Q2022) results.
KEY SUMMARY
1. On a quarter-on-quarter (“QoQ”) basis, PIE reported a dip in revenue and profitability in 1Q2022. The decrease was mainly due to lower demand for EMS and wire harness products. The lower margin was due to adverse product mix margins.
2. Management remains optimistic about the company’s prospects, indicating its topline to grow further in FY2022, supported by increased orders from new and existing clients.
3. Overall, we would only advise accumulating the shares during a market correction. Any price below RM2.50 should provide a good reference for entry.
UPDATE ON LATEST QUARTER (JAN – MAR) RESULTS
On a quarter-on-quarter (“QoQ”) basis, PIE reported a dip in revenue and profitability in 1Q2022. The decrease was mainly due to lower demand for EMS and wire harness products. The lower margin was due to adverse product mix margins.
On a positive note, PIE’s 1Q2022 PAT was 58% higher than 1Q2021, contributed by higher revenue from EMS, raw wire and cable products, and better product mix margins.
UPDATE ON FY2021 (JAN – DEC) RESULTS
As guided by the management since the beginning of 2021, PIE did manage to close off FY2021 with a record-high revenue of RM1bil. On a year-on-year (“YoY”) basis, PIE’s revenue and PAT improved by 49% and 20%, respectively.
The strong growth was primarily driven by its EMS division, after securing a new client i.e. Nintendo back in 2020. PIE’s net margin dropped from 6.8% in FY2020 to 5.5% in FY2021 as the Group shifted to a high volume; low product mix business model.
Having said that, we are comforted by the fact that the Group’s net margin in the last 2 quarters closed above the 6% mark.
In terms of balance sheet, PIE’s financial position remains healthy with a net cash position of RM12mil, low debt to equity ratio of 0.09x, and a current ratio of 2.4x. However, due to the rapid growth, the business experienced a tightening in Free Cash Flow (“FCF”) in the past two consecutive years.
In FY2020 and FY2021, PIE reported a deficit of -RM32.7mil and -RM89.7mil in FCF, respectively, due to increased inventories and significant capital investments made. The Group’s inventory cycle increased from 60 days in FY2019 to 90 days in FY2020 and, subsequently up to 120 days in FY2021. Although the increase was partly to mitigate the shortage in raw materials, we would remain cautious about management’s ability in terms of working capital management.
We expect the Group to report a strong FCF in FY22, otherwise, an immediate alarming indicator to us.
CORPORATE UPDATES
1. Key risk to the business remains to be customer concentration risk and shortage of foreign labour. New risk arose with regard to the Group’s working capital management.
2. Management remains optimistic about the company’s prospects, indicating its topline to grow further in FY2022, supported by increased orders from new and existing clients.
3. Expansion and commencement of the new manufacturing facility has been delayed due to the pandemic. The new plant is only expected to start operations in 3Q2022.
VALUATION UPDATES
2022-VOn our base-case assumptions, we opine that the Group is fairly valued at this juncture @ RM3.15. The potential catalysts for the PIE’s valuation would include, but are not limited to:
- Stronger than expected revenue growth in FY2022;
- Better product mix margins; and
- Higher PE multiples valuation.
Overall, we would only advise accumulating the shares during a market correction. Any price below RM2.50 should provide a good reference for entry.
Disclaimer
I am/we are long PIE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Every investor’s situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including a detailed review of the companies’ Bursa filings. Any opinions or estimates constitute the author’s best judgment as of the date of publication and are subject to change without notice.
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