Pentamaster 1H Profits Dip Due To Lower Gross Margin



PENTAMASTER Corp Bhd’s first half (1H21) results beat CGS-CIMB Securities Sdn Bhd forecast by 41% as profits were lower due to lower than expected gross profit margin (GP) after a mix unfavorable sales.

CGS-CIMB Research analyst Mohd Shanaz Noor Azam said for 1H21, Pentamaster revenue grew 21% year over year (YoY) on higher sales of its electro products -optics that grew 54% behind the global smartphone market. recovery.

“This was partially offset by lower sales of automotive equipment following supply chain disruptions since the start of this year. Automotive applications revenue fell 7% year-on-year in 1H21, ”he noted in a recent report.

Despite stronger group sales, Pentamaster’s profit margin before interest and tax in 1H21 declined 0.8% year-on-year to 24.1% due to an unfavorable mix of sales and operating expenses and higher depreciation.

“The group incurred higher raw material, transportation and outsourcing costs related to the equipment buyback due to ongoing travel restrictions,” he said.

He forecast a more solid 2H21 forecast for Pentamster thanks to its electro-optical and automotive segments, but anticipates minimal margin expansion due to high operating expenses.

Pentamaster second quarter 2021 (2Q21) revenue increased 13% quarter on quarter (QoQ) to RM 131 million due to higher demand for automated test equipment, where sales increased QoQ climbed 20% with higher project delivery from the electro-optical segment given the pick-up in demand for smartphones.

“Despite the better sales performance, Pentamaster’s GP margin fell 0.8%, from 29.8% in 1Q21 to 29% in 2Q21,” he added.

CGS-CIMB attributed GP’s lower margin to higher outsourcing costs and an unfavorable sales mix given the higher sales contribution from the semiconductor segment, which has lower margins than the segments. electro-optics and automotive.

“Overall, 2Q21 core net profit fell 13.6% quarter-on-quarter to RM18.2 million,” said Mohd Shanaz.

Pentamaster’s outlook for 2H21 sales is optimistic, driven by resilient demand for its 3D magnetometer tester given new sensor upgrades in next-gen smartphones and the backlog for bipolar transistor assembly grid and test equipment for electric mobility solutions.

“The group is responding to the equipment delivery problem by setting up assembly plants in China and Japan, which are scheduled to start up in 4Q21.

“This will help facilitate the delivery of automated test equipment during 2H21,” the analyst said.

He expects Pentamaster to incur above average operational expenses due to start-up costs for regional offices and higher raw material and transportation costs.

“As a result, we have reduced our earnings per share for fiscal 2021 (FY21) -FY23 from 5% to 7% respectively. We are downgrading the stock from “Add” to “Hold” due to the recent outperformance of its share price, the stock having risen 19.5% in the past three months, ”he said.

Pentamaster’s revised target price of RM 5.60 is based on forecast 37 times calendar year 2022 price-to-earnings ratio, and CGS-CIMB sets its valuation at 0.5 standard deviation above average history of the sector over three years.

The multiple at 37 instead of 26 for the valuation is due to the revaluation of the technological sector.

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