An update on Penta’s latest quarter (3Q2021) results for the period 1 July to 30 September 2021. Our first article on Penta was published on 19 June 2021.

KEY SUMMARY

1. The 25% increase in 9M2021 revenue (vs 9M2020) was mainly attributable to the strong results of the automated test equipment (“ATE”) segment. However, the increase in revenue was offset by a lower margin product mix. Normalised net margin declined from 25% to 22%.

2. The Group has been experiencing order intake momentum as customers across the industry segments are gradually preparing for higher levels of inventory to ensure supply security. Leveraging on the industry-wide upcycle, the Group continues to invest in its research and development capabilities to expand its product portfolio and offerings. The global technology “supercycle” momentum will continue to provide growth to the Group’s ATE segment for the immediate term.

3. Penta HK remains to be a better option compared to Penta MY, in terms of valuation. The lower valuation for the same business provides investors a decent upside potential plus a margin of safety against any downside risks.

p.s. During the quarter, Penta MY spent HKD8.7m (approximately RM4.6m) to repurchase shares in Penta HK. Their stake in Penta HK increased from 63.26% to 62.46% following the buyback.

UPDATE ON 3Q2021 (JUL – SEP) RESULTS

Strong growth from the factory automation solution (“FAS”) segment was the main contributor to the increase in the Group’s 3Q revenue. Despite the improved top line and gross margins, the Group’s net margin dip slightly due to:

• Lower interest income (RM2m);
• Loss on disposal of property, plant, and equipment (RM1m);
• Fair value loss on foreign currency forward contracts (RM4m); and
• Equity-settled share award scheme expense (RM3m).

UPDATE ON 9M2021 (JAN – SEP) RESULTS

The 25% increase in revenue was mainly attributable to the strong results of the automated test equipment (“ATE”) segment. However, the increase in revenue was offset by a lower margin product mix. As disclosed, profit margins were affected by higher component price and shipment costs. During the quarter, the Group also undertook a higher quantum of prototype projects for proof of concept.

The 9M2020 vs 9M2021 revenue breakdown by segment is as follows:

By customers’ segment, the largest segment remains to be electro-optical (47.8%), followed by Automotive (17.1%), Consumer and industrial products (14.1%), and Semiconductor (15.4%).

MANAGEMENT UPDATES

1. The global technology “supercycle” momentum will continue to provide growth to the Group’s ATE segment for the immediate term. Leveraging on the industry-wide upcycle, the Group continues to invest in its research and development capabilities to expand its product portfolio and offerings.
2. The Group is witnessing an upturn in momentum from the automotive segment given the strong growth in automotive electrification. The Group’s venture in North Asian and European region were timely on hindsight. In the latest quarter, the Group made its first delivery of a test handling equipment for integrated power module (“IPM”).
3. The Group anticipates a smoother progress in its project site installation and deployment at its customer’s premise, which is an important milestone for revenue recognition to take place.
4. The Group has been experiencing order intake momentum as customers across the industry segments are gradually preparing for higher levels of inventory to ensure supply security. In this regard, the management is actively adjusting its inventory management strategies as well as project lead time planning with its customers to effectively manage the challenging situation (semiconductor shortage and logistic hiccups).

VALUATION UPDATES

With reference to Penta’s latest quarter results, we have made an upward adjustment to our earlier projection on the Group’s FY2021 full-year results, including its estimated full-year revenue and net profit margins.

As per our earlier article, Penta HK remains to be a better option compared to Penta MY, in terms of valuation. The lower valuation for the same business provides investors a decent upside potential plus a margin of safety against any downside risks.

Having said that, several concerns to be considered when investing in Penta HK, include the low liquidity of Penta HK shares, lack of publicity and interest amongst HKex investors on Malaysian business due to the abundance of investment opportunities in China and Hong Kong, etc.

In our opinion, one should consider Penta HK over Penta MY from the lens of the company’s valuation. However, be prepared to hold them for a long time…

p.s. During the quarter, Penta MY spent HKD8.7mil (approximately RM4.6mil) to repurchase shares in Penta HK. Their stake in Penta HK increased from 63.26% to 62.46% following the buyback.