The decrease in orders on hand is partly due to dynamic changes in the industry and shorter delivery cycles. The management of the company is optimistic about the medium-term outlook.
Due to COVID-19 's epidemic, the supply chain has been disrupted, which may affect the company's operating performance in the short term.
The company will continue to provide customized solutions and focus on improving profitability to drive profit growth. We believe that the company will grow through mergers and acquisitions and diversifying its customer base.
Considering that the epidemic may lead to a slowdown in income growth, we have lowered our net profit forecasts for 2020 and 2021.
We lowered the target price-to-earnings ratio from 17 to 15, the target price slightly from HK $2.66 to HK $2.60, and moved the base year to 2020. The recent adjustment of the company's stock price has brought good opportunities to enter the market.
The reduction of orders is not an obstacle
The company's orders-on-hand fell from 241 million ringgit at the end of September 2019 to about 200 million ringgit at the end of December 2019. This is due to dynamic changes in the industry and shorter delivery cycles. According to industry news, the company's biggest customer has changed its business model and provided more conservative capital expenditure guidelines, but this has had no real impact on Penang Jakota's prospects.
The company is involved in different types of projects, such as cars, health care and smartphones, and management is not worried about changes in orders. But COVID-19 's epidemic has created uncertainty because supply chain disruptions will affect the company's production.
Growth power
In the long run, we believe that Jakota's growth in the next few years will be mainly driven by the following factors: 1). Work more deeply 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). Expand 3D sensor module test equipment and solutions; 3) continuously and actively invest in different industries, especially in automotive and medical fields; 4). The prevalence of industrial 4. 0 is conducive to the expansion of the industrial automation (FAS) market. Penjakota has launched a 3D sensor test device for Android smartphones, so we are likely to see a major breakthrough in the year of FY20. Management reiterated that the company would look for mergers and acquisitions to support its growth. The company is in good financial condition and we do not expect the company to issue new equity to finance future mergers and acquisitions.
Adjustment and prediction
Taking into account the COVID-19 epidemic, we lowered the company's sales growth forecast, lowered the profit forecast for FY20 and FY21 by 7.6%, lowered the target price from HK $2.66 to HK $2.60, and lowered the target price-to-earnings ratio from 17 times to 15 times. Our target price-to-earnings ratio for Penang Jakota is at a discount to other Hong Kong-listed peers. The recent stock price adjustment is partly due to concerns about the impact of COVID-19 's epidemic on the supply chain. We believe that the recent adjustment of the company's share price has brought good opportunities to enter the market.
