We met up with PIE’s
management to obtain periodical updates on the company. It reported a splendid
set of FY11 results with earnings jumping 48.4% y-o-y on the back of an
all-time high revenue of RM349.6m, though seasonality factors and
softer orders caused 1QFY12 revenue and earnings to suffer a decline on a q-o-q
basis. Nevertheless, the y-o-y performance of 1QFY12 was commendable with
revenue growing 5.2% y-o-y to RM80.0m and PBT increasing 8.9% y-o-y to RM9.2m.
By securing orders from new clients as well as more orders from its existing
clients, we believe that the company’s earnings would be able to hit a new
record high this year. PIE is currently trading at 6.8x FY12 PER, with a
handsome gross dividend payout of 9.9% as well as a net cash position of
RM92.4m, or RM1.44 per share, as at end-March 2012. We arrive at a target price
of RM5.48, based on its 5-year average PER of 8.8x.
Softer organic growth from existing clientele,
offset by higher contribution from new customers. PIE Industrial Bhd (PIE) posted a lower
q-oq 1QFY12 result on the
back of seasonality factors and softer
demand from its existing clients. Generally, 1Q is deemed to be the weakest quarter of the year
but the negative momentum was exacerbated by the softer-than-expected demand
from its existing clients, which were affected by the European debt crisis and the weaker-than-expected recovery in the US. To track the future performance of
PIE, we need to examine its main
client, which is a NYSE-listed company in the
US. In this particular company’s
latest investor and analyst meeting presentation slides, it projects a core
growth of 2-5% through a combination of mid-single digit growths in emerging
markets and low-single digit growths in developed markets. We reckon that this
forecast is achievable given its relatively diversified stable of businesses,
namely life sciences & diagnostics, industrial technologies, dental,
environmental and test & measurement.
Shifting our focus back on PIE, we are forecasting a revenue growth of
3% for the company, with an expected slow 1HFY12. In addition, PIE has managed
to clinch deals from a few new clients and we are expecting a total
contribution of about RM30m from its new clients to its top-line in FY12.
Minimum wage not an issue. We gather that there will be
marginal impact from the implementation of
a minimum wage of RM900 for Peninsular Malaysia. About 750 of its employees are earning
between RM700 and RM800, and the
implementation of the minimum wage would
increase its total cost by roughly 1%.
Potential for higher dividend yield with strong
balance sheet. PIE
declared a total dividend of 39 sen less 25% tax (a first and final dividend of
12 sen per share, less tax and a special dividend of 23 sen per share, less
tax) in FY11, which translates to an attractive gross dividend yield of 9.2%.
The company is in a net cash position with its net cash per share standing at
RM1.44 as at end-March 2012. PIE traditionally pays out about two-thirds of its
net earnings as dividends to reward its shareholders. Assuming an EPS of 62.4
sen and a payout ratio of 67% in FY12, we are forecasting a total dividend of
42 sen for FY12, which translates into a high gross dividend yield of 9.9%.
6.8x FY12 PER, 9.9% FY12 gross dividend yield. PIE produces industrial electronic
products, the demand for which is less cyclical compared to that for consumer
electronics. As such, its earnings are relatively stable. Current share price
of RM4.25 makes the FY12 gross dividend yield more appealing at 9.9%. We are
pegging a target price of RM5.48 on PIE on the back of: (i) its unbroken profit
record for the past 12 years, (ii) its earnings
of RM25.3m-RM38.1m for the
past five years, (iii) RM92.4m in net
cash/cash equivalents as at 31 March 2012 and minimal borrowings, and (iv) high
dividend payout ratio of 67%.
Source: OSK
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