Last 2 weeks, Lembaga Tabung Haji and EPF had a large buying interest in PENTA. EPF remains the 3rd largest shareholder of PENTA and on 24 May 2022, they bought in another 400k share for PENTA. So, today I’m going to share with you some key takeaways from the PENTA’s 1Q2022 results virtual briefing.
Background
Pentamaster Corporation Bhd (7160) is a world-class automated manufacturing and technology solution provider established in 1991 in Penang. PENTA provides a range of services in manufacturing automated and semi-automated machinery and equipment, designing and manufacturing precision machinery components, as well as design, assembly, and installation of computerized automation systems and equipment.
The group’s technologies and solutions can be deployed across a host of industries worldwide, ranging from semiconductor, computer, automotive, pharmaceutical, medical devices, electrical & electronics, food & beverage and consumer products to general manufacturing. Their customers are all over the world, such as the US, Europe, Africa, Asia Pacific and ASEAN countries.
Business Model
The company segments include Automated Test Equipment (ATE), Factory Automation Solutions (FAS) and Smart Control Solutions System.
1. Automated Test Equipment (ATE) – Help customers to test products
2. Factory Automated Solution (FAS) – Designing, developing and installing factory automation
3. Smart Control Solution System – Project management, Smart Building and trading equipment
Key Takeaways
1. Based on the PENTA’s 1Q2022 results virtual briefing, the group’s order replenishment is gaining good traction, especially from the automotive segment, underpinned by strong demand in wafer burn in and test solutions for silicon carbide (SiC) and gallium nitride (GaN) from new and existing customers.
2. The automotive segment is the largest revenue contributor at 35.9%, followed by electro-optical (30.3%), consumer and industrial products (13.6%), semiconductor (12.6%) and medical devices (7.6%).
3. PENTA targets their topline growth in FY2022 on strong demand for high power modules going into electric vehicles, trains and consumer electronics. This was mainly driven by a growing customer base and more recurring orders for its wafer burn in and test solutions for SiC and GaN compound substrate and backend solutions for power management integrated circuits, such as insulated gate bipolar transistor and AC-DC converters. The management expects they can achieve RM1bil sales by 2025F, driven by its diversification strategy across its product portfolio, end application and geographical footprints.
4. CGS-CIMB expects the group remains upbeat on growth, underpinned by new drivers like Pentamaster MediQ and rising demand for automation solutions with the rise in labour cost from inflationary pressure and shortage of labour. It aims to raise the revenue contribution of its auto segment to 30% by the forecast end of 2022.
5. As at end of Mar 2022, PENTA’s order book hovered at RM380mil. However, there is a new surge of order replenishment over the last 1.5 months. Hence, on 12 May 2022 PENTA’s order book backlog stood at more than RM500mil, of which 40% is related to the automotive segment.
Quarterly Results Updates
1. On Y-o-Y basis, PENTA’s net profit rose 25.2%, while on Q-o-Q basis, PENTA’s net profit rose 5% to RM32.4mil. The increase was mainly due to the increase in contribution from the ATE business segment which is largely driven by the demand from the automotive and electro-optical segments.
2. In 1QFY2022, PENTA’s revenue from ATE segment increased by 50.1% to RM130.5mil (4QFY2021: RM87mil), driven by the demand from the automotive segment given the global momentum is structurally shifting toward electric vehicles. It has fueled the demand for the group’s automotive test solutions entailing a full range of assembly and test technologies, from front end to backend solutions.
3. The FAS segment recorded a decrease in revenue of RM33.7mil in 1QFY2022 (4QFY2021: RM8.6mil), representing a decrease of 8.4% as a result of the timing of project delivery in the FAS segment. The smart control solution system segment recorded a lower revenue in 1QFY2022 amounting to RM33,000 (4QFY2021: RM0.1mil).
4. PENTA’s gross profit margin grew by 0.2% in 1QFY2022 Y-o-Y to 30%, despite a 27% Y-o-Y sales growth. The minimal gross profit margin was mainly due to higher raw materials and component prices. However, PENTA expects a higher gross profit margin in the upcoming quarters in view of a better sales mix, higher average selling price and better cost management. PENTA’s management added that the latest ASP revision is reflected in nearly 70% of the latest order book.
5. PENTA is a net cash company with cash and cash equivalents of RM458.9mil. Their total borrowings only stood at RM2.5mil and it has a total receivable of RM216.9mil which is sufficient to cover its trade payables of RM96.5mil.
6. In terms of prospects, the supply chain environment remains disruptive and challenging, the group will continue to work closely with its customers and suppliers for better capacity planning and visibility. The group aims to deliver its order as scheduled barring any significant adverse impact from the supply chain bottlenecks, logistics constraints and geopolitical knots.
Fundamental Analysis
𝗠𝗮𝗿𝗸𝗲𝘁 𝗖𝗮𝗽: RM2.65bil
𝗡𝘂𝗺𝗯𝗲𝗿 𝗼𝗳 𝗦𝗵𝗮𝗿𝗲𝘀: 712.32mil
𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗽𝗲𝗿 𝗦𝗵𝗮𝗿𝗲: RM0.11
𝗣𝗘 𝗥𝗮𝘁𝗶𝗼: 34.1x
𝗥𝗢𝗘: 13.4%
𝗗𝗶𝘃𝗶𝗱𝗲𝗻𝗱: RM0.015
𝗗𝗶𝘃𝗶𝗱𝗲𝗻𝗱 𝗬𝗶𝗲𝗹𝗱: 0.4%
𝗡𝗧𝗔: RM0.8
𝗣𝗕 𝗥𝗮𝘁𝗶𝗼: 4.6x
Y-o-Y Revenue Growth Rate: 27.4%
Y-o-Y PAT Growth Rate: 22.3%
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