Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily, on April 3, 2017.

 

BUTTERWORTH: An original design manufacturing (ODM) project and increasing orders in its electronic manufacturing services segment are expected to lift PIE Industrial Bhd’s earnings by more than 15% for the current year.

This is a reverse of the situation seen in the financial year ended Dec 31, 2016 (FY16) when earnings declined after the group lost a major customer besides suffering severe labour shortage.

Managing director Alvin Mui Chung Meng said the 15% growth projection for FY17 is a conservative estimate, with strong indications of even higher revenue and profit.

Mui said that since the fourth quarter of FY16, PIE Industrial has been gaining more orders from existing and new customers, which are making up half of the revenue that was initially lost from the loss of the major customer.

“The existing and new customers are confident about our costs and quality. In this sector, our customers have many suppliers, so we are constantly competing with global suppliers. Our [pricing] has become very competitive, hence more orders,” he told The Edge Financial Daily.

PIE Industrial’s net profit for FY16 fell 36.7% to RM36.45 million, from RM57.6 million in FY15, due to lower revenue and lower margin of products mix, higher operating expenses and lower interest income.

Revenue fell 12.5% to RM579.3 million from RM662.2 million in FY15 on lower orders from electronic manufacturing activities, which was however partly offset by higher orders from wire and cable, wire harness products and trading activities.

PIE Industrial makes wires and cables, which are its staple business contributing 20% to its revenue. The remaining 80% revenue comes from original equipment manufacturing in the area of electronic manufacturing services (EMS) for box-builds and semi box-builds, and barcode scanners.

The group also produces cable assembly used in the medical, telecommunication and personal computer-related products.

Mui explained that having Taipei-based Hai Hon Precision Industry Co Ltd (which trades as Foxconn Technology Group) as its substantial shareholder has enabled PIE Industrial to leverage on its purchasing power and technical expertise.

“Foxconn is so big, especially [with regard to] their purchases of raw materials, where they enjoy contract prices. As a member of the group, we too get the same price, which cuts production costs. About 75% to 80% of a product cost is made up of material costs. That is why our price is good for our customers,” he said.

Since 2000, iPhone parts maker Foxconn has held a 30% stake in Taiwan-listed Pan-International Industrial Corp, which holds a 51.42% stake in PIE Industrial through Pan Global Holding Co Ltd.

Mui said the ODM in the EMS segment would kick off in the second half of FY17 and would essentially contribute to the earnings growth for the year.

“We started providing this service for an existing customer [in FY16], but we have a new project coming in the second half [of FY17]. The scope is wide and we are targeting our current customers.

“We know what the customer wants and we want to provide more services for them. ODM would definitely raise our profit margins,” he said, declining to specify the estimated growth in margins.

Mui added that the group’s design head is based in Taiwan to engage with design groups as a research and development team set up in FY16.

PIE shares closed at RM2.29 last Friday, with a market capitalisation of RM879.5 million.

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