Penang Jakoda reported bright results for 2018 and exceeded our expectations, reflecting that weak smartphone shipments did not have a significant impact on its operations. This confirms our previous view that the market is overly worried about Penang Jakota's growth prospects.
The company's orders further increased from 2.857 billion ringgit at the end of September 2018 to 303 million ringgit at the end of December. Strong orders should support the company's growth in 2019.
The adoption of new technologies and industry diversification by smartphone OEMs will support Penang Jakota's recent business growth.
We raised our profit forecast for 2019 and raised our target price from HK $1.36 to HK $1.48. Individual stocks are currently trading at a price-to-earnings ratio of 7.2 times 2019, and valuations are attractive given the company's growth potential and strong financial position.
Outstanding performance in 2018; strong order growth
Penang Jekoda last night reported excellent results for 2018. The company's turnover in 2018 was 1.7 billion ringgit, an increase of 53.5% compared with 271 million ringgit in 2017. The net profit for the period was RM1.0 billion, up 145.7% from 4070 ringgit in 2017 and higher than our forecast of 8920 ringgit. The better-than-expected results are mainly due to: 1) better-than-expected gross profit margin and 2) strict cost control. The gross margin for 2018 is 32.7% (we expect it to be 32.2%).
Sales, comprehensive expenses and administrative expenses accounted for 8.9% of the total turnover in 2018, lower than our expected 12.3%. At the end of December 2018, the company's cash and cash equivalents were 2.177 billion ringgit, down slightly from 2.222 billion ringgit at the end of September 2018. The company's orders gradually increased from 235.7 million ringgit at the end of June 2018 to 285.7 million ringgit at the end of September and reached RM303 million at the end of December. The company's strong results and increased orders in 2018 confirmed our positive view of the company, while reflecting that weak smartphone shipments had little impact on it in the fourth quarter of 2018, and orders continued to increase during the company period. We reiterate that the company's smartphone business is mainly related to the adoption of new technologies and has nothing to do with total shipments, which is why the company outperforms other manufacturers of mobile phone parts.
Growth power
Penjakota's growth in the next few years will mainly be driven by: 1) deeper cooperation with customers to provide test equipment and solutions to meet the adoption needs of smart sensors in a wider range of product lines and market segments; 2) expansion of 3D sensor module test equipment and solutions business to cover SL and TOF applications, and multiple 3D testing requirements for VCSEL 3) continuously and actively participate in different industries, especially the automobile industry. Due to the high utilization rate of electronic equipment for self-driving control and the continuous growth of electric vehicles, the business of the automobile industry is growing rapidly.
Attractive investment theme
If investors are interested in investment topics such as semiconductor equipment, automated production, new optical technologies, and fast-growing automotive electronics, Penang Koda will be one of the targets.
Penn Jekoda offers another option for investors interested in investing in semiconductor equipment, automated production, new optical technologies and the fast-growing automotive electronics business. Despite the differences between the two companies, we reiterate that recent investment in Camtek by Zhimao Electronics may reflect that there are still growth opportunities in the back-end test equipment division of the global semiconductor industry, even if there is a slowdown in the industry as a whole. This also supports our positive view of Penang Jekoda. As the 2018 performance exceeded our expectations, we revised up our profit forecast for 2019 and raised our target price from HK $1.36 to HK $1.48.
