Penta: Increased Bottom-line from One-off Negative Goodwill

Results Update

For QE30/9/2015, Penta's net profit increased by 68% q-o-q or 172% y-o-y to RM5.5 million while revenue dropped by 13% q-o-q or 6% y-o-y to RM21 million. Revenue dropped q-o-q due to the deferment in delivery of certain projects in the automated equipment operating segment which was partially offset by the increase in revenue contribution from the automated manufacturing solution operating segment. PBT increased q-o-q mainly due to the better product mix with higher margin achieved coupled with the foreign exchange gain from the sharp appreciation of USD. In addition, PBT was boosted by other income of approximately RM2.6 million in negative goodwill arising  from the acquisition of Origo Ventures (M) Sdn Bhd.
  

Table: Penta's last 11 quarterly results (Source: ShareInvestor.com)

Looking at Penta's top-line for the past 5 quarters doesn't inspire confidence. There is no growth in revenue. Is its earning growth coming purely from MYR weakness?

 
Chart 1: Penta's last 11 quarterly results (Source: ShareInvestor.com)

 Valuation

Penta (closed at RM0.79 yesterday) is now trading at a PER of 8.4 times (based on last 4 quarters' EPS of 9.4 sen). If the one-off negative goodwill is excluded, the EPS for the last 4 quarters' EPS would be revised downward to 7.5 sen and its PER would be pushed up to 10.5 times. At these PERs, Penta is deemed fully valued. 

Technical Outlook

Penta is in a medium-term upward channel, with support at RM0.75. With the MACD Signal line crossing below the MACD, the stock's uptrend is under threat.

Chart 2: Penta's weekly chart as at Nov 5, 2015 (Source: ShareInvestor)


Chart 3: Penta's monthly chart as at Nov 5, 2015 (Source: ShareInvestor)

Conclusion

Based on good financial performance and positive technical outlook, Penta is rated as a HOLD. A sword of Damocles hangs over the head of Penta; how would its earnings fare if the weak MYR starts to strengthen? Thus, one should consider Selling into Strength if the share price rallied towards the upper line of the channel.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Penta.