03/10/2021
Key takeaways of our meeting with PIE Industrial (PIE MK, Not Rated):
♦️ MCO impact. PIE’s operations have been affected by the MCO since 2Q21. At present, it is running at >80% capacity right now, and management expects production to hit maximum levels from October onwards, since over 80% of its workforce has been vaccinated. Meanwhile, some reallocation of staff personnel was carried out to maximise the number of operations on the production floor, to mitigate the impact.
♦️ Current outstanding orderbook is more than what PIE can fulfill, and should last it more than six months. That said, management is confident on its outlook, based on upcoming order forecasts from all its customers, and has set a minimum 30% YoY growth target for FY22. Potential tax benefits may be recognised in the 4Q21, as the company is still weighting options on the available tax incentives. Management is confident that revenue will exceed MYR1bn this year, and that PIE will soon march to the next target of MYR2bn.
♦️ Challenges. Production output has been constrained by the labour shortage – especially in terms of foreign labour. Management is looking for labour supply up north, and rehiring some of the legalised foreign workers to address this issue. PIE has reduced its foreign labour dependency from 85% from a few years ago to 55% presently. The industry-wide raw material shortage issues are seemingly well-managed, with little to no impact felt – thanks to diligent planning and supplier sourcing. Material and transportation costs, on the other hand, have a minimal impact on the cost-pass-through mechanism.
♦️ Customer update. Its “N” customer is currently slowing down operations due to a positive COVID-19 case on the customer side, but its plan to allocate 20% of production to Malaysia is unchanged. Meanwhile, its “R” customer has started to ramp up production, and expects to reach a target of 200k units this year, then 600k units in 1H22 alone. Management is rather positive on this new product in terms of volume – the new product is also included in its product line-up for next year. Its new “L” customer is likely to place orders next year – which should lead to a potentially significant revenue contribution, as this may involve work all the way to level 10 assembly operations. All the margins for the new product is the similar that for PIE’s other customers, but higher than that related to the “N” customer, within the range of 5-7%. Management is also hopeful on prospects regarding another potential new portable energy-related customer (now at the sample build stage).
♦️ New expansion. Many expansion programs are ongoing, as PIE has converted its store and canteen into production/burn-in space. The new additional plant will be completed by year-end, and is expected to be operational by mid-2022. PIE is also repossessing a previously leased plant, and the handover is scheduled to happen by mid-2022. These should expand its total floor space by 50%. PIE has also budgeted for an additional two surface mount technology lines to be installed by year-end, to cater to the increase in orders. Total capex for new facilities plant is
