Operating under the new norm

■ Pentamaster’s 4Q21 performance was affected by macro factors, which may result in lower-than-expected performance.
■ The volatility in its quarterly results, due to macro factors, may become the new norm.
■ We suggest investors examine its 4Q21 performance; Pentamaster remains a beneficiary of industry development trends, such as power management (upstream substrates and IGBT modules).
■ The medical device manufacturing contribution will be a medium- and long-term growth driver for Pentamaster.
■ Pentamaster has outperformed its HK-listed peers along the supply chain on a threemonth basis. We maintain our ADD rating with a lower target price of HK$1.59, based on 19x 2021 P/E (increased but still lower than the average of its HK-listed peers of about 24x). The downward revision in our target price was due to a cut in forecasts for 2021 after factoring in slower turnover growth owing to delays in revenue booking.

4Q21 was challenging because of macro issues

After the sequential improvement in performance in 3Q21, Q421 was challenging for Pentamaster because of supply chain issues. The Company’s operating performance was affected again because of delays in revenue booking. The volatility in its quarterly results due to macro factors may become the new norm. We suggest investors examine its 4Q21 performance. The Company remains a beneficiary of industry development trends. The reported quarterly results in past two years have shown that the Company is capable of delivering growth despite a challenging environment (tight supply of components, logistics issues and lock-downs).

Automotive expected to drive growth in 2022

Since Pentamaster is a solutions provider, we believe it is well positioned to leverage and capture growth from the structural shift towards a greener environment, coupled with the proliferation of artificial intelligence and the Internet of Things, which has accelerated a massive digital transformation across key industries, such as the electro-optical, automotive and semiconductor segments. Pentamaster’s continuous focus on its threepillar business strategy of diversification across geographical regions, business segments and product portfolio remains the key to maintaining profitable and sustainable business operations. The auto sector will remain a growth driver for Pentamaster, as the Company has solutions from the front to the back end (upstream substrates and IGBT modules), including third-generation semiconductors (SiC). Pentamaster is doing increasing business with US and Chinese customers, and its Japanese and European customers are gradually ramping up their investment in new product development. Its third factory, in Batu Kawan, with 500k square feet of space, is expected to commence production in 2023.

Maintain ADD

We cut our net profit forecasts for 2021F, 2022F and 2023F by 7.4%, 2.1% and 2.3%, respectively, after factoring in slower turnover growth in 2021 We maintain our ADD rating with a lower target price of HK$1.59, based on 19x 2021 P/E (revised up but still lower than average of its HK-listed peers of about 24x). The downward revision in our target price is due to a cut in forecasts for 2021 after factoring in slower turnover growth owing to delays in revenue booking.