Saturday, November 16, 2019

Positive trend from trade war should be coming through PIE Industrial and VS Industry

The early impact of trade war can be seen now. While companies are scrambling to reorganize their supply chain, within the short run we see deterioration of international trade. Yesterday, Malaysia announced a 4.4% GDP growth - not bad given the circumstances. Export sector has seen a drop expectedly. As discussed in my previous article, we will see some companies benefiting from the trade war while others may suffer. I foresee those that are benefiting in the long run would be

  • PIE Industrial
  • VS Industry
  • Globetronics
  • Pentamaster has shown a surprisingly positive results
While those whom will be immediately impacted are:
  • Inari Amertron
  • KESM
  • Unisem
  • Carsem (MPI)
  • Aemulus

The announcement provided by Statistics Department which is not a surprise,

Malaysia’s exports of goods in the third quarter of 2019 recorded a decrease of 1.9 per cent to RM247.0 billion as compared to RM251.8 billion registered in the same period last year. The main products which attributed to the decrease were electrical & electronic products and crude petroleum that shrank by 4.9 per cent and 43.9 per cent respectively.

For PIE, it announced a better 3rd quarter results yesterday against previous quarter of 2Q19 as well as last year's quarter of 3Q18. While its profitability improved (due to foreign exchange gain, lower administrative costs, reversal of impaired collection), its revenue dropped a little.

It is a decent result given the circumstances. It is expected as US imposed additional tariff starting on 1 September 2019 causing companies to scramble to readjust. We seen the results impacting some companies but still VS and PIE are not affected as much. In the long run they will gain.

What is more important as has been provided by PIE is a guidance on what it expects for 2019 and beyond as below. From what we read, PIE may not increase its revenue substantially, but potentially the profit margin will increase. It is more selective in its business orders - something which one can do when times are better. It is better times potentially for Malaysian EMS companies. We see the same through VS Industry.

Current Year Prospect - PIE Industrial (3Q19)

The major source of revenue and profit of the Group is from its manufacturing segment (99%). For EMS activities (80%), orders are expected to increase in the long run from existing customers and potential new customers through its fully built-up vertical integrated manufacturing facilities which have been improved in operation for the past 5 years. Due to the beneficial effect of USA-China trade war, this division is expected to receive more orders from new overseas customers in 2019. This division will cancel certain new low-margin, high-volume products since beginning of 2019 and focus on profitable projects from potential new customers. The serious shortage of certain electronics component in 2018 is expected to be smoothen in coming quarters. However, any drastic fluctuation of Ringgit Malaysia against USD will be the main factor affecting its performance in the near future. 

I see better performances for these companies in the EMS sector throughout next few years as the global trend is changing and for the better.


蛤蜊先生 said...

Hi there, any comment for FPI, as FPI is in EMS sector as well.

felicity said...

I think it is a growing company. Doing well, and better. It is EMS but may be more focused on audit solutions. Hard to read, pricing wise is pretty exciting.

蛤蜊先生 said...

thanks felicity for your comment. Yes, it is focused on audio music instrument, i like it because of growing company, decent and growing dividend (more than DY6%) and fair price ( PE10).

felicity said...

The price is quite attractive

Unknown said...

Hi Felicity, are you sure PIE will benefit from the coming trade war and what should be the target price for PIE?

felicity said...

Ya. I think it is a beneficiary. I usually look long term. Trade war is not a short term affair. Hence it should grow in terms of profit I guess