circuit board

 
 

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US-China trade war to sweeten PIE’s performance in second half: Kenanga

PETALING JAYA: P.I.E. Industrial Bhd (PIE) is expected to perform better in the second half of 2019 (H2 19) driven by several factors, including prospects arising from the US-Chna trade war.

“Due to a shift in a new customer’s supply chain motivated by the US-China trade war, the group has engaged the former and started its maiden telecommunication device with its first shipment completed, while its second shipment close behind.

“Management expects contribution of its maiden telecommunication device to become meaningful by end of Q3 19,” said Kenanga Research in its report.

During a meeting with PIE’s management recently, Kenanga Research learned that the end customer is a major retail name, from which the group has already obtained three certifications, which could usher in additional contracts.

The group is currently working with its direct customer to develop a new audio-related accessory to be integrated into the abovementioned telecommunication device to be sold as a premium product.

In addition, another new customer has engaged the group to manufacture printed circuit board assembly (PCBA) for its white goods on a consignment basis.

“We are upbeat about the group’s medium-term prospects given the slew of new customers in the pipeline,” it said.

For H1 19, the group is unlikely to face issues with component shortages as it has already stocked up for three months ahead compared with the usual practice of one to two months.

“However, management cautioned the possibility of the issue resurfacing in Q3, should the adoption of 5G gain momentum. We believe that management would be more prepared this time, with better raw material management,” said Kenanga Research.

While 1Q19 is likely to be a weaker quarter on seasonality and higher start-up costs for its new products, the group’s earnings are expected to pick up in 2H19 to make up for the shortfall.

The improved earnings are premised on seasonal ramp-up alongside higher allocation from its telecommunication customer; mass production of its new products (industrial printing and production, and medical segment) with full-year earnings contribution in FY19; contribution from its maiden telecommunication device from end-Q3 19 onwards; and steady growth from its existing key customers.

“The abovementioned should be able to comfortably support our estimated two-year revenue/core net profit compounded annual growth rate of 11% and 15%,” it said.

Kenanga Research maintained its “outperform” rating on the stock, with an unchanged target price of RM1.90 and made no changes to its FY19-20 earnings estimates.

“We think that there is good value proposition at current price level, with its forward PER (price-to-earnings ratio) at only 12 times, at a 15% discount to its closest EMS (electronic manufacturing services) peers which is trading at 14 times PER. Note that this is all against the backdrop of its relatively higher net profit margin, more advanced manufacturing capabilities as well as having strong parentage support from Foxconn Technology Group,” it added.


VS Industry upgraded to ‘buy’ after recent sell-off

PETALING JAYA: AmInvestment Bank has upgraded VS Industry Bhd (VSI) to a “buy” call as it believes the recent sell-off offers opportunities for investors to accumulate VSI shares, premised on its long-term prospects tied to solid execution track record, despite short-term prospects being dampened by a string of headwinds.

“Despite the expectations of declining order flow for its key customer, we understand that the group is currently in various stages of discussion with more than five prospective multinational corporation customers to secure new orders that would fill the excess capacity in its facilities,“ the research house said in a report today.

VSI’s profit warning last month spooked the investors, sending the stock to a low of 63 sen from its recent high of RM1.59. It closed 2.04% higher at 75 sen today on 18.23 million shares done.

It had said that the second-half financial performance will be affected by the anticipated lower sales order.

At the recent AGM, VSI managing director Datuk Gan Sem Yam had shared that the ongoing US-China trade war has opened up opportunities for VSI through receipts of enquiries from US MNCs looking to shift or diversify their manufacturing bases to Southeast Asia.

“We concur that VSI is well-equipped to take on these opportunities given its new facilities with 300,000 sq ft combined production space, which include a 120,000 sq ft factory and new 180,000 sq ft factory.

“Furthermore, VSI continues to undergo cost rationalisation exercise to streamline its operations in China in light of uncertainties from the US-China trade war, higher operating costs and intense competition faced,“ AmInvestment Bank said.

The research house added that VSI boasts a healthy balance sheet with its net asset per share standing at 84 sen with net gearing of 0.2 times as at Oct 31, 2018. At the current price, VSI is trading at nine times its price-earnings ratio (PE), way below its two-year historical average PE of 19 times.

“All in, we believe VSI’s fundamentals remain intact and recommend a buy on weakness.”

Despite the rating upgrade, AmInvestment Bank has lowered VSI’s fair value to RM1.04 from RM1.31, pegged to a lower 2019 forecast PE of 14 times (previously 15 times) amid the anticipated order slowdown in 2019 and reduced market capitalisation.

“We cut our FY19-FY21 forecasts further by 6-15% mainly on account of lower printed circuit board assembly revenue tied to reduced contribution from VSI’s key customer in 2HFY19.”


US sets new March 2 date for China tariff increases amid talks

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