19% tariff rate a positive for PIE

PETALING JAYA: PIE Industrial Bhd, which has posted weak second-quarter (2Q25) results due to the impact of the trade diversion and US tariffs, hopes to be able to recover its lost businesses eventually.

However, the outlook is challenging at the moment as the company was affected in 2Q25 due to a customer (Customer A) having preemptively diversified production to Indonesia in anticipation of potential tariff adjustments, notably since Indonesia secured a lower tariff rate of 19% ahead of Malaysia.

Kenanga Research said without this impact, PIE’s net profit for the first half of 2025 (1H25) would have been at approximately 38% of its full-year forecast compared to 31% currently.

That said, recovery could be imminent, given that Malaysia has now also secured a 19% tariff rate.

According to Kenanga Research, the group is eyeing an upcoming order cycle potentially in 4Q25 and aims to capture around one-third of the expected allocation.

“We believe the company can regain lost market share in upcoming orders, given no discernible tariff difference among countries. Additionally, while Customer A plans to establish a US manufacturing facility, management sees the higher cost as commercially unviable and expects continued reliance on Asian vendors for assembly,” it said.

Meanwhile Maybank Investment Bank Research (Maybank IB) said PIE is now negotiating to reclaim the lost volumes from this particular customer, with the earliest recovery expected only by 4Q25.

The group shared in an analyst briefing that prior to the tariff regime, Malaysia, Indonesia and Thailand each accounted for roughly one-third of Customer A’s volume.

However, Kenanga Research also notes that for now, the volumes that have already been reallocated are difficult to immediately recover from the same customer on entrenched material and resource commitments.

“PIE is still in ongoing discussions with several prospective customers exploring trade diversion opportunities from China and Vietnam. Progress was previously hampered by Malaysia’s higher 25% tariff versus most competing regions.

“With the tariff now reduced to 19%, in line with neighbouring countries, talks have resumed, though the onboarding timeline remains uncertain according to management,” Maybank IB said.

The research outfit retained its “hold” rating and target price of RM3.56 for PIE, which is based on a 17 times the financial year 2026 (FY26) forecast price-to-earnings ratio (PER).

Kenanga Research held its “market perform” rating and lowered its target price to RM3.85 from RM4.60 previously, based on a rolled-forward FY26 forecast valuation base and an unchanged PER of 21.6 times.