The progress of sales and product delivery in Penang Jakota has been affected by blockades and travel restrictions in a number of countries.
The gradual increase in orders may reflect that industry activity is recovering from the recent trough.
We believe that the company will continue to develop through mergers and acquisitions and diversified customer base.
Taking into account the impact of COVID-19 's epidemic, we lowered the company's revenue forecast, and subsequently lowered the net profit forecast for fiscal years 2020 and 2021.
The target price was lowered to HK $1.95 from HK $2.60, mainly due to a reduction in the net profit forecast. The target price-to-earnings ratio remains unchanged at 15 times.
Results in the first quarter of fiscal year 20 affected by COVID-19 's epidemic situation
Penang Jakota reported a net profit of 2620 ringgit in the first quarter of fiscal 20, down 13.5 per cent from 3030 ringgit in the first quarter of fiscal 19. Revenue for the period was 100 million ringgit, down 14.3% from 1.167 billion ringgit in the first quarter of fiscal 19.
The gross margin for the period was 34.1%, slightly lower than the 35.3% in the first quarter of fiscal year 19. The company's financial position remained sound, with cash and bank deposits of 313.1 million ringgit at the end of March 2020, slightly higher than the RM340 million at the end of December 2019.
In terms of downstream applications, the telecommunications and semiconductor business dragged down the company's overall performance, but revenue from consumer goods and industrial products as well as automobiles and medical devices showed year-on-year growth. The year-on-year increase in revenue from medical devices is due to the acquisition of TP Concept last year. By segment, FAS's revenue grew 93.8% year-on-year in the first quarter of FY20, due to the acquisition of TP Concept and increased customer demand for the company's i-ARMS solutions. Sales and product delivery progress in Penang Jakoda was affected by blockades and travel restrictions imposed by several countries in the first quarter of fiscal year 20. As a result of Malaysia's action control order, management expects 20% of finance to be challenging. The company's orders-on-hand rose from about RM200 million at the end of December 2019 to less than RM230 million in the first quarter of FY20. We believe that supply chain activity is recovering from the recent trough, and management also mentioned that industry activity is returning to normal.
Growth depends on new product development
Taiwan's electronics manufacturing services industry believes that the smartphone industry's performance in the second quarter was slightly worse than expected. Some investors may be worried about Penang Jakoda because telecommunications accounts for the company's largest share of revenue (first quarter of FY20: 43.3% of revenue). We reiterate that Penang Jakota's growth is driven by new product development rather than by shipments. For Penang Jakoda, the timing of the new product release is more important. In the long run, we believe that Penn 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 popularity of Industry 4. 0 is conducive to the expansion of the factory automation solution (FAS) market.
Adjustment and prediction
We lowered the company's profit forecasts for fiscal year 20, fiscal 21 and fiscal 22 by 24.7%, 25.8% and 22.8%, respectively, due to the sales assumptions of the automated testing equipment (ATE) division due to COVID-19 's epidemic and recent supply chain uncertainty. We maintain our forecast for the FAS segment because it is less affected in the current environment and we may see an increase in demand as the global supply chain recovers.