Decent 2Q22 results; no slowdown yet
- Pentamaster released its 2Q22 results, which reported record-high quarterly turnover and decent yoy net profit growth despite increasing macro uncertainties.
- Owing to unfavourable FX movement, Pentamaster booked about a MYR4m net FX loss in 1H22, mainly due to MYR movement in 2Q.
- The auto sector was the main growth driver, which more than offset weakness in demand from the smartphone segment in 2Q22.
- We revised down our revenue and net profit forecasts for 2022–2024F post-2Q results adjustment. We maintain the view that Pentamaster remains a beneficiary of industry development trends, such as power management (upstream substrates and IGBT modules) applications for autos.
- We reiterate our ADD rating with a target price of HK$1.45, based on 14x 2022 P/E.
2Q22 results recap
Pentamaster reported 2Q22 net profit of MYR31.1m in 2Q22, up 6.5% yoy from MYR29.2m in 2Q22, but down 6.2% qoq from MYR33.2m in 1Q22. 1H22 net profit accounted for 43.2% of our original full-year forecasts for 2022. Its gross profit margin was 31.1% in 2Q22, up from 29.4% in 2Q21 and 30.5% in 1Q22, but lower than our original full-year forecast of 32.2% for 2022. The Company reported 2Q22 revenue of MYR151.3, up 15.9% yoy from MYR130.6m in 2Q21 and up 3.7% qoq from MYR146.0m in 1Q22. 1H22 revenue accounted for 46.9% of our original full-year forecast for 2022. Pentamaster’s 2Q22
revenue was a record high on a quarterly basis. The automotive sector was the growth driver in 1H22, accounting for about 35% of revenue (1H21: 20% of total revenue). Strong demand from the automotive segment was due to global momentum in structurally shifting towards EVs. Pentamaster also benefited from an increase in demand for automotive test solutions, entailing a full range of assembly and test technologies from front- to back-end solutions. Strong revenue growth from the automotive sector more than offset revenue weakness in the electro-optical sector. Revenue from the medical devices sector also reported strong yoy growth, accounting for 8.1% of revenue in 1Q22, up from 7.6% in 1Q22 and 2.6% in 1Q21. Revenue from the FAS segment in 1H22 increased by 7.8% to MYR76.3m.
Order book expected to support growth
The Company’s order book remained at a high level at about MYR500m at the end of 2Q22, almost flat qoq and still higher than MYR350m at end of 4Q21. The strong order book will support the Company’s growth in 2022. The Company had cash and bank deposits of about MYR333.9m at the end of Mar 22. Its strong financial position enables it to fund future development. The Company is expected to enter a period of encouraging growth on back of strong order fulfillment in tandem with its key segment focus, driven largely by the wave of major underlying global trends. The strategy adopted by the Group in the medical devices segment focuses on long-term sustainability to stay ahead of the curve in addressing new users and markets where it has a competitive edge. Pentamaster’s product range includes front-end testers covering new compound substrates, such as silicon carbide (SiC) and gallium nitride (GaN), to back-end solutions that involve testing, assembling and packaging integrated power management circuits.
Reiterate ADD
We revised down our net profit forecasts for 2022F, 2023F and 2024F after the 2Q22 results announcement after factoring in slower turnover growth and a lower gross profit margin. We reiterate our ADD rating with a lower target price of HK$1.45, based on 14x 2022 P/E (target P/E multiple remains unchanged).
