Slated to be fully occupied by a single existing customer, PIE is currently installing equipment in its Plant 5, which is expected to be operational by 2QCY24. It has on-boarded four new customers which will contribute 8%-12% of its FY24F total revenue while demand from its existing customers will continue to stay robust. We maintain our forecasts, TP of RM4.00 and OUTPERFORM call.

We came away from an engagement with PIE yesterday feeling reassured of its positive outlook. The key takeaways are as follows:

1. PIE remains very optimistic going into 2024 with the renovation of Plant 5 (c.100k sq ft) completed, and is currently undergoing the process of equipment installation. The group aims to complete the installation by 2QFY24 and begin operation subsequently. Plant 5 will be allocated to an existing customer that will occupy the entire floor space due to heightened demand. The group is also mulling the possibility to further construct a c.80k sq ft extension in Plant 5 soon as it anticipates the existing floor space to be fully occupied in a short period.

2. Additionally, the group has successfully on-boarded four new customers with products related to: (i) drone device for light shows, (ii) diagnostic device for oral cancer, (iii) smart home, and (iv) industrial sensors. The drone device and smart home customer have begun production with the diagnostic device for oral cancer to follow in March. Contributions from these new customers are expected to collectively account for c.8%−12% of total group revenue in FY24.

3. As for its existing customers, we learnt that the uptick in the recently reported 4QFY23 performance stemmed from increased demand across its key customers, with the focus on Customer M (manufacturing of national security communication devices), Customer A (DeFi equipment) and Customer N (entertainment device). The order momentum is expected to remain at such elevated levels with Customer A expected to further ramp up ahead of the year followed by Customer N which is expected to launch a new model in early-2025.

4. In addition, it is in discussion with several more potential new customers in the AI server space. Hence, there is need for PIE to ensure Plant 6 (c.280k sq ft) will be up-and running by end-2024.

Forecast. Maintained.

Valuations. We maintain our TP of RM4.00 based on unchanged 18x FY24F EPS, in line with its peers’ forward average. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We continue to like PIE for: (i) its comprehensive skillset, making it a top-choice EMS provider for MNCs, (ii) various competitive advantages it enjoys as a unit of Foxconn, and (iii) its diversified and evolving client base, from those involved in communication devices and power tools to the latest DeFi equipment. Maintain OUTPERFORM.

Risks to our call include: (i) loss of orders from/non-renewal of contracts by its key customer, (ii) labour shortage and rising labour cost, (iii) negative reviews on treatment of migrant workers by activists, and (iv) unfavourable currency movements.

Source: Kenanga Research - 27 Feb 2024