Attractive risk-reward potential
? FY21 results were in line at 101%/97% of our/consensus full-year forecasts.
? We project stronger earnings growth in FY22F, driven by robust orderbook replenishment and higher demand going into electric vehicle and FAS.
? Upgrade to Add with a lower RM4.20 TP, based on 26x CY23F P/E.
Sequentially stronger core net profit in 4Q21
Revenue in 4Q21 fell 12.6% qoq due to delays in delivery for certain projects towards the end of 2021. Despite the weaker sales performance, EBITDA margin rose 6.1% pts from 22.9% in 3Q21 to 29% in 4Q21 due to better cost control following a decline in admin and distribution costs in the quarter. Total admin and distribution cost in 4Q21 fell 34% qoq to RM11.7m (vs. RM17.6m in 3Q21). Overall, the group registered 13.9% qoq core net profit growth to RM22.2m in 4Q21. The group declared a 2 sen final DPS in the quarter.
FY21 core net profit grew 6% yoy
FY21 revenue surged 21% yoy, driven by higher sales from electro-optical (+25%), automotive (+24%), semiconductor (+25%) and consumer electronics (+28%). Despite stronger sales, GP margin fell 3.3% pts yoy to 30% in FY21, which the group attributed to a higher quantum of prototype projects for proof of concept and an unfavourable sales mix. It also incurred higher raw material costs, shipping and outsourcing expenses related to equipment buyoff due to ongoing travel restrictions. Nevertheless, the group delivered healthy 6% core net profit growth in FY21. We tweak FY22-23F EPS by 1-2%.
Projecting stronger earnings growth in FY22F
The group is guiding for mid-teens topline growth in FY22F on the back of healthy orderbook replenishment from new and existing customers. We gathered from management that Pentamaster’s orderbook hovered at RM350m as at end-Dec 21, which is higher compared to RM300m as at end-Sep 21. We expect the electro-optical division to remain a major contributor to the group, supported by newer and more advanced sensor upgrades in smartphones and peripherals. Meanwhile, we expect to see 25% yoy growth in the automotive segment, riding on accelerating adoption in EV and e-mobility. In
addition, the group also completed the acquisition of 12 acres of land in Batu Kawan for RM28.3m in 2021. The group plans to build its third plant on the new site in Batu Kawan, mainly catering to the factory automation solution (FAS) and medical device segments. The group plans to begin construction in 1Q22F with projected completion by 1Q23F. Overall, this will help to sustain the group’s expansion plans beyond FY22F.
Upgrade to an Add with a lower RM4.20 TP
The stock has fallen by 36% YTD in view of weaker sentiment in the global tech sector. We see compelling value in the stock as it trades at 24x CY22F P/E, which is lower than 1 s.d. below the Malaysian Automated Test Equipment (ATE) sector’s 3-year mean P/E of 34x. Hence, we upgrade the stock from Hold to Add with a lower RM4.20 TP, based on a lower 26x CY23F P/E, which is 1 s.d. below the ATE sector mean.