20200210-软库中华金融服务-槟杰科达-01665.HK-Time_to_be_conservative_on_the_multiple_expansion_8页_857kb

Pentamaster (01665.HK) Summary

Core Content

Pentamaster (01665.HK) reported robust revenue growth in the first three quarters of 2019, driven primarily by strong demand from the telecommunications industry. The company's revenue increased by 18.5% year-over-year (YoY) to MYR 361.6 million, with the Automated Test Equipment (ATE) segment contributing MYR 313.7 million (21.2% YoY growth) and the Factory Automation Solutions (FAS) segment contributing MYR 47.9 million (3.4% YoY growth). The ATE segment saw a significant surge, growing by 32.4% YoY and 9.4% quarter-over-quarter (QoQ), accounting for 90.0% of the total revenue in Q3.

Main Points

• Strong Q3 Performance: The telecommunication sector was the main driver of revenue, contributing 76.2% of the topline in Q3, up from 67.9% in the first half of 2019.
• Factors Behind Growth:
  • A global consumer electronics company released new products in Q3, boosting demand.
  • Seasonality effects in the smartphone market, with Q3 and Q4 being peak periods.
• Profit Margins: Gross margin expanded from 35.8% in 2019 1H to 36.3% in Q1–Q3, a 0.7 percentage point increase, driven by economies of scale and better customer mix.
• Order Conversion: The company experienced faster order conversion due to market uncertainty, which led to a higher conversion rate and lower order book on hand.
• Acquisition of TP Concept: Pentamaster Equipment Manufacturing acquired TP Concept for MYR 21.0 million on 26 September 2019. The acquisition comes with a profit guarantee of MYR 12.0 million for 2020FY and 2021FY.
• Valuation and Rating: The analyst downgraded the rating from "Buy" to "Hold," citing concerns over the uncertain macroeconomic environment, particularly the US-China trade tensions, and a more expensive valuation. The target price was raised to HKD 1.93 per share from HKD 1.60.

Key Information

• Recommendation: Hold
• Target Price: HKD 1.93
• Current Price: HKD 2.03
• Market Cap (bn HKD): 3.2
• Free Float (%): 36.3%
• Gross Margin (Q1–Q3 2019): 36.3%
• Operating Margin (Q1–Q3 2019): 27.0%
• Net Margin (Q1–Q3 2019): 25.4%
• ROE (Q1–Q3 2019): 35.5%
• EBITDA (Q1–Q3 2019): MYR 135.3 million
• Net Profit (Q1–Q3 2019): MYR 128.3 million
• Revenue Breakdown:
  • ATE: MYR 313.7 million (21.2% YoY growth)
  • FAS: MYR 47.9 million (3.4% YoY growth)
• Order Book Dynamics: Accelerated order conversion due to market uncertainty, leading to a higher conversion rate and lower order book.
• Acquisition: TP Concept, a Malaysian manufacturer of medical machines and die casting parts, was acquired for MYR 21.0 million with profit guarantees.
• Valuation Concerns: The analyst remains cautious about the long-term outlook due to ongoing trade tensions and a more expensive valuation, despite positive secular trends and customer mix improvements.

Risk Factors

• Declining Smartphone Market: Slow adoption of 3D sensing and 5G development.
• US-China Trade Tensions: Prolonged trade war affects global supply chains, especially in consumer electronics and telecommunications.
• Market Uncertainty: Impact on order placement and supply chain strategies.

Peer Comparison

Financial Highlights

• Revenue Growth (YoY):
  • 2019 FY: 28.3%
  • 2020 FY: 19.0%
  • 2021 FY: 15.5%
• Net Profit (YoY):
  • 2019 FY: 28.3%
  • 2020 FY: 19.0%
  • 2021 FY: 15.5%
• Gross Margin (YoY):
  • 2019 FY: 37.0%
  • 2020 FY: 38.0%
  • 2021 FY: 39.0%
• Operating Margin (YoY):
  • 2019 FY: 27.0%
  • 2020 FY: 28.3%
  • 2021 FY: 29.6%
• Net Margin (YoY):
  • 2019 FY: 25.4%
  • 2020 FY: 26.6%
  • 2021 FY: 27.7%
• ROE (YoY):
  • 2019 FY: 35.5%
  • 2020 FY: 34.0%
  • 2021 FY: 32.2%
• Debt-to-Equity Ratio:
  • 2019 FY: 0.8%
  • 2020 FY: 0.6%
  • 2021 FY: 0.4%

Conclusion

Pentamaster (01665.HK) has shown strong revenue growth in the first three quarters of 2019, driven by the telecommunications sector and improved gross margins. Despite positive long-term trends and new orders, the analyst has adopted a more conservative stance due to macroeconomic uncertainties and a higher valuation. The company's strategic moves, such as the acquisition of TP Concept, highlight its efforts to expand its business and customer base. However, the ongoing US-China trade tensions and the slow recovery of the smartphone market remain key risks.