D365FO production estimation to create reference production orders for BOM lines marked as 'Pegged Supply'

Wondering how can D365FO production order estimation for a finished good can create child/reference production order's for semi-finished goods?

Well, one need to mark the BOM lines as 'Pegged Supply' instead of item.

This create reference production order exactly as per the BOM line estimated quantity.

However if there is on-hand inventory of the item then the suggested way is to choose the BOM line type as item and let MRP do the coverage.