PENTA (7160) - PENTAMASTER CORPORATION BERHAD (7160.MY) 作者： LZF - 八月 06, 2017

Company Background

PENTA (7160) is in technology sector and a leader in providing advanced, world-class manufacturing automation solutions and focus on both test solution for Smart Devices and Intelligent Automated Robotic Manufacturing System (“i-ARMS”) in picture 1, coupled with consistent focus on the technological advances. 

Picture 1

Financial performance

	FY2012	FY2013	FY2014	FY2015	FY2016
Revenue (RM'000)	56,896	67,343	81,047	83,604	151,938
Gross profit (RM’000)	9,708	11,875	21,238	24,315	48,469
Profit after tax (RM'000)	2,852	2,852	6,043	12,290	29,585
Gross profit margin (%)	17.06	17.63	26.20	29.08	31.90
Profit after tax margin (%)	5.01	4.24	7.46	14.70	19.47
Total borrowings(RM'000)	10,642	6,695	188	242	447
Shareholders' equity (RM'000)	54,562	56,906	61,457	76,030	108,196
Fixed asset (RM’000)	46,562	44,313	41,819	42,042	43,418
Inventories	11,085	10,738	11,105	6,543	17,617
Total asset (RM’000)	90,940	84,652	89,842	96,555	143,471
CF from operation (RM’000)	(63)	5,275	11,962	7,886	17,466
CAPEX (RM’000)	(3)	(1,133)	(1,439)	(3,584)	(3,816)
FCF  (RM’000)	566	4,899	8,382	15,382	30,843
Share Price(RM)	0.20	0.22	0.38	0.72	1.36
NAV per share (RM)	0.41	0.43	0.46	0.57	0.75
NTA per share (RM)	0.36	0.40	0.44	0.50	0.74
Net basic EPS (sen)	-1.00	1.79	3.40	8.97	18.76
PE ratio (times)	N/A	12.29	11.18	8.03	7.25
ROE (%)	5.23	5.01	9.83	16.16	27.34

Table 1

Smart devise for automated and mobile devices are the main stream of income that booth the revenue of PENTA into 28% of CAGR in five years. Observe from table 1, in FY16, revenue is mainly contributed from Malaysia, followed by Singapore and China

Table 2

We could obviously see from table 2, more than 60% of the business is from automated equipment, which is the i-ARMS business. While offering solution system is to add value to the customers in order to deliver strong growth to the company. Without automated equipments, manufacturing solution systems don’t come. Therefore the main core business is still falling into the equipments itself.

Income Statement Analysis

Table 3

Free cash flow (FCF) of PENTA is getting more and more, but nothing to surprise because positive FCF is getting normal nowadays. Cash flow from operation of PENTA was in negative figure in FY2012. Slowly then, the sales started to pick up and creating positive cash flow from the operation, it is improving in an overall view. In the annual report stated, PENTA is focusing on R&D to enable them to achieve a diverse range of manufacturing industries. And we can clearly see the CAPEX is getting more and more, meaning the company is really doing its expansion.

Share Price VS NAV VS NTA

Table 4

Few years back PENTA was always trading below NAV and NTA, after FY2014 it started to drive up and traded above NAV and NTA. Reason being is obviously because of the future prospect and the potential growth that the investors noticed. For a growing company like PENTA, margin of safety is subjective to every investor. Thus, NAV and NTA only serve as a benchmark where they do not derive the intrinsic value of PENTA.

PE Forecast

Table 5

It was a loss making year during FY2012, thus PE ratio does not have any reference value. Averagely we can get a PE or 9-10x. However, as at 3^rd of August 2017, the price and PE ratio of PENTA have gone up to RM4.26 and 20.10x respectively due to optimism in future prospect of PENTA. To bring down PE ratio back to 10x while maintaining the price at RM4.26, PENTA must perform extraordinary to boost up earnings per shares (EPS). As a simple calculation, PENTA should have EPS of 42.6sen to bring PE ratio back to 10 and maintaining at RM4.26. While it is difficult for a growing company to use PE ratio in predicting its value because we are using current earnings ability and not future earnings ability to forecast. Therefore, I, as an analyst do not take PE ratio into consideration.

Margin Comparison

Table 6

Here is another reason why share price of PENTA keep on heading to the north. Gross profit margin has been rising over the years. The management is really doing their job well. Instead of slashing product price to remain competitive, they took prompt action to place focus in offering solutions and products to add value. Profit after tax margin is also growing over the years, which means the expenses are all well controlled.

ROE dissection

	FY2012	FY2013	FY2014	FY2015	FY2016
ROE (%)	5.23	5.01	9.83	16.16	27.34
Net profit margin	0.05	0.042	0.075	0.15	0.19
Total asset turnover	0.63	0.80	0.90	0.87	1.06
Equity multiplier	1.67	1.49	1.46	1.27	1.33

Table 7

ROE of PENTA has been growing healthy along the way. If we take a closer look, we could see the sub ratios that drive ROE up are the constantly growing net profit margin as well as the total asset turnover.  It literally means PENTA is doing well in controlling expenses and better utilization is assets to generate more revenue. PENTA is along the way financing its total asset by using bigger portion of equity. That could mean PENTA is changing its capital structure towards a more conservative approach in order to sustain when the economic is bad.

Technical Analysis 

Table 8

PENTA is having a long term uptrend for more than one year. A closer look from March to August 2017,there is a trend support and resistant red line as presented in the Table 3 above. But we can notice from the red circles above, there was a hugh selldown with high volume and caused RSI to be oversold.

The general idea is that when suport line is broken and we shall anticipate there is a downtrend coming. However, few days later PENTA went up again and made a historical high. If you sell PENTA when it breaks support line, you could have missed a 20% return from PENTA. 

Comparing the green circle and red circle in RSI,  red circle is more heavily oversold than RSI in green circle but the price in red circle never drop below the price in green circle. Therefore we could justify the breaking in support line is a false signal to trap people.

Conclusion

PENTA is having a good bisuness model with good management team and they are considering listing its automated solution business on main board in Hong Kong to fund future growth. According to the management, they expect the sales for the first half of 2017 to exceed the figure last year. In a longer term, PENTA should perform better than now.

Disclaimer

All stock recommendations and comments are the opinion of writer. Investors should be cautious about any and all stock recommendations. Various factors, including personal ownership, may influence or factor into a stock analysis or opinion. All investors are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance is not indicative of future price action. Investors should be aware of the risks involved in stock investing, and use the material contained herein at own risk. Writer will not guarantee its accuracy or validity, nor responsible for any errors or omissions which may have occurred.
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