11-08-2025
Tariff clarity likely to spur PIE orders rebound
PETALING JAYA: PIE Industrial Bhd is looking to turn the page on a subdued first half of 2025 (1H25), with analysts pointing to a potential rebound in orders following the finalisation of Malaysia's 19% tariff rate, which has restored parity with regional peers and reduced uncertainty for the group's key customers.
Kenanga Research noted that 'the finalisation of Malaysia's tariff rate at 19% has lifted near-term uncertainty,' enabling PIE to resume discussions with customers, who had deferred major decisions.
'Pricing parity is expected to drive both new orders and resume previously delayed orders, particularly from its key customer,' the research house said.
The group is actively engaging both existing and potential clients, with '10 potential customers from Vietnam and China' under discussion, according to Kenanga Research.
Operationally, the Plant 5 expansion for PIE is on track for completion by the end of the last quarter of the year (4Q25), with a link bridge to Plant 3 scheduled for 1Q26.
Plant 6 is ready for mass production of switches and awaiting qualification for server production.
For 1H25 ended June 30, PIE posted a core net profit of RM24.6mil, down 3.8% year-on-year (y-o-y) and well below analysts' expectations.
Maybank Investment Bank Research (Maybank IB) said earnings came in at '35% and 29% of our and consensus full-year estimates, respectively', attributing the shortfall to weaker-than-expected order loading from key customers.
Revenue rose 4.9% y-o-y to RM503mil, supported by electronic manufacturing services (EMS) with a 5.5% y-o-y growth and wire harness sales, which grew 44%, but was offset by a 2% decline in raw wire and cable sales.
Gross profit margin contracted to 7.1% from 8.4% a year earlier, while core net margin eased 0.4 percentage points to 4.9%.
Quarter-on-quarter (q-o-q), revenue fell 15% to RM231mil in 2Q25, with EMS sales tumbling 23% as customers adopted a 'wait-and-see approach' amid the US tariff uncertainty.
The weaker sales mix pushed gross margin down 2.5 percentage points to 5.8%, dragging core net profit 45% lower to RM9mil, according to Maybank IB.
The brokerage firm has taken a more cautious stance, cutting its earnings forecasts for PIE for financial year ending 2025 (FY25) to FY27 by 22% to 26% and downgrading PIE to 'hold' with a lower target price of RM3.56 from RM4.70 previously.
This is pegged at 17 times FY26 price-to-earnings ratio at minus 0.5 standard deviation of its five-year forward mean.
'Risks include delays in customer onboarding, muted demand visibility, high customer concentration, subdued operating leverage and persistent labour constraints,' the research house warned.
Kenanga Research, however, maintained its 'market outperform' call with a target price of RM4.60, citing optimism over the post-tariff order recovery.
It values PIE at 21.6 times FY25 earnings per share, a 10% discount to artificial intelligence server-related peers such as NationGate.
PIE's 2Q25 performance was also hit by a RM3.6mil net foreign-exchange loss, compared with a RM2.6mil gain a year earlier.
While EMS remains the dominant revenue driver, other segments showed resilience. Still, EMS pre-tax profit margins fell sharply to just 0.1% in 2Q25 from 4.9% in 1Q25, while raw wire and cable margins improved to 16% from 14.8%.
Nevertheless, both research houses cited PIE's diversified and evolving client base, spanning communication devices, power tools and decentralised finance equipment – as a strength.
Maybank IB also pointed to its 'ready and available production capacity of 280,000 sq ft' to serve new customers and growing exposure to supply chain diversification trends.
While near-term earnings visibility remains clouded, upside catalysts include earlier-than-expected customer onboarding, large contract wins and favourable forex movements. Conversely, risks extend to order losses, labour shortages and adverse trade policies.
