槟杰科达(1665.HK)：Potential beneficiary of lower import tariff

机构：信达证券

Factory Automation System (FAS) to benefit from increasing IC contents in automobiles and China favourable policy    

FAS revenue grew 26.1% CAGR in FY14-FY17, and further accelerated to 80.1% Yoy to MYR 25.1Mn (12.6% of 1H18 revenue), and segment result came in at MYR 2.86mn (vs. MYR 0.94mn in 1Q18).   

Particularly in China, in view of rising wages, shortage in skilled factory workers, growing demand for high precision parts/components (e.g. consumer electronics and automotives) and to improve production efficiency and quality, these provide ample room for FAS implementation (e.g. industrial robots installation). Pentamaster targets to expand Greater China business, and we believe they would benefit under Made in China 2025 and Robotics Industry Development Plan 2016-2020(《機器人產業發展規劃（2016-2020年）》） 

Order backlog with high sales visibility, new plant began operation 

In 1H18, Pentamaster’s outstanding order backlog came in at MYR235.7mn (vs. MYR249.2 in end-2017), which implies a ~1.2x book-to-bill ratio, already accounted for ~60% of market consensus revenue. With 6-9 months delivery time required, this means most of the backlogs would be recognized as revenue in FY18E and 1Q19.  

Following the completion of the second new production plant with GFA ~97k sq. ft., Pentamaster production plant’s total gross floor is now estimated to be >180k sq. ft. Pentamaster expects more delivery of projects involving large-scale factory automation lines such as i-ARMs solutions in 2H18E. The new plant fulfill clean room ISO Class 9 environment, which is a prerequisite for a number of potential customers in the medical device sector.  

Undemanding FY18E 10.2x PE, re-rating story still makes sense 

We expect Pentamaster’s core EPS to grow 40.9% CAGR in FY17-FY20E, driven by gradual GM expansion from both business segments and enjoy economy of scale. Pentamaster is trading at an undemanding valuation 10.2x FY18E PE (~50% discount to peers avg. at 20.2x). We believe Pentamaster still deserves a re-rating story. We arrive its TP at HK$1.58 based on 14.2x FY18E PE (30% discount to sector average vs. 20% discount in our last report in June 2018 due to markets’ lower risk appetite for small caps). We identify the following upside catalysts for Pentamaster: i) Parent co’s 9M18 result (due in mid-Nov), ii) Pentamaster’s increasing order-backlog, iii) Faster than expected adoption of 3D sensing and under-glass FP recognition modules and iv) Order wins from medical device clients