2. P.I.E INDUSTRIAL BERHAD

Figure 1: PIE Industry Berhad

P.I.E Industrial Berhad (PIEIB) was incorporated in Malaysia on 21 March 1997, and become public listed company on 30 May 1997.

Figure 2: PIE Group Structure

Their group business activities are:
1. Assembly of Various Types of Cables (Medical, telecommunication and PC-related product)
2. Electronic manufacturing and testing of various electronic products
3. Manufacturing of wires and cables for various industrial applications

Figure 3: PIE Largest Shareholder

P.I.E Industrial Berhad (PIEIB) is Taiwanese Holding Company by Pan Global Holding Co. Ltd (51.42% holding). Pan Global Holding Co. Ltd is actually the holding company of Foxconn Technology / Hon Hai (鸿海集团) by Terry Gou (郭台铭). Foxconn Technology is the largest shareholder for Pan Global. The below companies in red box are all related to Foxconn Technology.

Figure 4: Foxconn Share Holding in Pan Global Holding Co. Ltd

As in August 2016, Foxconn Technology took over Sharp Japan. Pan Global started to receive orders from Sharp Corporation. In just 3 months, Pan Global received orders from Sharp Corporation NTD 125,077,000. As Sharp Corporation is starting to turnover from loss to profit this early year after taking over by Foxconn, does it mean that Sharp Corporation will give bigger orders in near future?

Sharp is the major supplier of LCD panels to Apple Inc. As we know Foxconn is the major partner to Apple Inc, with the acquisition of Sharp Corporation, Foxconn has become more reliable partner to Apple and strengthen their business relationship. This will create chain reaction to Pan Global and therefore to P.I.E industry business.

Figure 5: Sharp Corporation Order to Pan Global Holding Co. Ltd

Below are Pan Global revenue in year 2015 (104) and year (105).

Figure 6: PIE Contribution to Pan Global Holding Co. Ltd

According to year 2015 (104) and year 2016 (105), the revenue contribution of P.I.E Industry to Pan Global Holding Co. Ltd total revenue is average 10.33%. The revenue from Malaysia in Pan Global is only 51.42% of the total revenue of P.I.E as Pan Global only has 51.42% of stock holding.

 

Figure 7: Pan Global Holding Co. Ltd Monthly Revenue year 106 (2017) and 105 (2016)

Figure 8: P.I.E Latest 10 Quarter Results

As Taiwan public listed company needs to submit their financial report monthly, this actually can provide us the opportunity to estimate the revenue of P.I.E based on latest three months financial report by Pan Global by finding out P.I.E revenue contribution percentage to Pan Global.

Figure 9: PIE VS Pan Global Holding Co. Ltd in Revenue

According to the chart above, the revenue of PIE and Pan Global are corresponding. When the revenue of Pan Global is increasing, the revenue of PIE is increasing too, and vice versa.
Below is the table to show the revenue contribution in percentage based on historical results.

Table 1: PIE Revenue Contribution in Percentage and Estimate Revenue of PIE in Q1 2017

If based on average revenue contribution of 10.50%, can we assume that P.I.E coming Q1 2017 Quarter Revenue will be around RM153,381,000? As YOY comparison in 2016 (RM 119,725), the revenue growth will be at least 28%? This estimated revenue will be one of the highest revenue in Quarter 1 in company history except in year 2014 (RM157,367).

 

In the latest quarter report (Sep 2016 to Dec 2016), P.I.E has net foreign exchange gain of RM6,386,000. Based on the chart, the USD range is RM4.10 to RM4.45 from Sep 2016 to Dec 2016. From Jan 2017 to Mar 2017, the USD range is RM4.42 to RM4.45. P.I.E is expected to have good foreign gain in coming quarter report too.

Figure 12: PIE Currency Risk Sensitivity Analysis year 2015

From The Star Newspaper, PIE is now negotiating four major projects and targeting for more than 15% growth in year 2017.

Figure 13: PIE eyes four big projects

These four major projects are expected to boost up the future prospect of PIE. The projects are mostly supplying to Europe and USA.

Figure 14: PIE expected growth 15% in year 2017

Figure 15: PIE New Facility in Seberang Jaya

PIE CNC precision tooling division will start operation in new facility. This will bring down the outsourcing source which can bring up the net profit margin. As in below chart, the net margin of PIE is lowering throughout the years. PIE is seriously starting to prepare its CAPEX to build new facility to bring down the overall overhead cost which is beneficial for company future net margin.

Figure 16: PIE Net Profit Margin from 2007 to 2016

Figure 17: P.I.E Latest 10 Quarter Results

According to the latest quarter result, the net profit margin is 12.20% (Highest in few years). This might due to the high foreign exchange gain. As USD/MYR is maintained at 4.40, PIE is expected to maintain its net profit margin.


Stock Price Estimation

Table 2: Estimated Stock Price PIE Year 2017

As USD/MYR is maintained around 4.40 since earlier this year, even much higher than last year, net foreign exchange gain should be able to maintain in Q1 2017. If remaining 2017 USD/MYR can be maintained, P.I.E foreign exchange gain should be stable. 

P.I.E was facing flat year in 2016 due to lower demand from the E&E customers. As this year E&E export is picking up momentum this year, P.I.E should be able to return to its peak in its E&E export business with the insight of its mother company, Pan Global breaking new high in revenue.

Management also gives signal that old customers are starting to order from them and they also build up new customer base in 2016. Year 2017 should be year of harvest to return to its peak.

With the new facility starting in Q2 2017, the net profit margin should be able to breakthrough its recent low profit margin. From the Table 2, we also know that a slight improve in net profit margin, will actually improve P.I.E stock valuation significantly.

Conclusions

As Pan Global is breaking new high in revenue starting end of last year, PIE is also coming back from the lower revenue in early year 2016. Q1 is normally the lowest season for Pan Global, but it gave very good result in its latest announce monthly revenue. This will definitely beneficial to PIE. Sharp Corporation by Foxconn obviously will give more orders to Pan Global, and therefore to PIE.

As USD currency is going high now, PIE export business will be in advantage for its foreign exchange gain too. Year 2017 will be good year for PIE.

The risk is that if ringgit is strengthening against USD, PIE might face loss in foreign exchange. According to its annual report in 2015, ringgit strengthening of 10% may bring down profit of around RM 2 to 3 million.