Paper Example on Stock Performance Analysis: PCB & JHM

Introduction

This report is a stock performance analysis of Pentamaster Corporation Berhad (PCB) and JHM Consolidation Bhd. (JHM), which Malaysia's stock exchange lists. The report breaks down into three parts. Part I offers a background overview of PCB, including when the BCP commenced its operation, where it is incorporated, and which products it sells. It also presents the PCB's corporate structure, product segments, as well as its regional markets. Part II comprises an analysis of the companies' stock performance, which uses profitability ratios. It also discusses the drawback of agency cost on companies profitability. The report ends with Part III, which investigates on PCB's and JHM's competition, a brief description of why these companies profits vary from those of their competitors.

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PCB Company Overview

PCB's Background

Pentamaster Corporation Berhad (PCB), is an investment holding group that started its operations in 1991 and has its headquarters in Lepas, Malaysia (Pentamaster Corporation Berhad (PCB), 2017). PCB offers automation manufacturing and high-tech solutions (PCB), 2017). PCB provides unified and tailored solutions to different global industrial clients, which include semiconductors makers, computer manufacturers, electrical and electronics makers, pharmaceuticals, medical devices manufacturers, the motor vehicle industry, the food, and beverages manufacturing as well as all-purpose manufacturing firms (PCB, 2017

Corporate Structure

PCB has three subsidiaries. These include Origo Ventures (M) Sdn. Bhd., which it owns 100%; Pentamaster International Limited (PIL), 63.7%; and Pentamaster Smart Solution Sdn. Bhd., 100 %. In 2017, the company transferred all its equity claim on "Pentamaster Technology (M) Sdn. Bhd. ("PT"), Pentamaster Equipment Manufacturing Sdn. Bhd. ("PQ") and Pentamaster Instrumentation Sdn. Bhd. ("PU") to PIL for a total consideration of equivalent to RM86,776,487, settled via the issuance of 999 ordinary shares of HKD0.01 each in PIL to the Company" (PCB, 2019, p. 91) In turn, PIL controls 35% of Penang Automation Cluster Sdn. Bhd. ("PAC") and 100% of Pentamaster Equipment Manufacturing, Inc.("PEMI") (PCB, 2019). These companies are incorporated in Malaysia, unless as indicated in Appendix A.

Business Segments

The company revenue derives from three business segments, including - the Automated Equipment (AE), the Automated Manufacturing (AM), and the Smart Control (SC) solutions segments (PCB, 2019). The AE section designs, develop, and engineers, both standardized and non-standardized equipment, and accounted for 80.03% of the Group's total revenue in 2018 (PCB, 2019; Teng, 2019). The AM segment design, develop, and install integrated industrial solutions, which contributed 17.36% of the PCB's revenue (PCB, 2019). The SC section offers project management and smart building solutions. It is the latest introduction to the PCB's portfolio of subsidiariers and had the least income (Teng, 2019), comprising only 1.21% of the total revenue attributed to it, in 2018 (PCB, 2019).

Regional Markets

In 2018, the company revenues descended from the following regions (PCB, 2019):

Financial Analysis

PCB Financial Performance

Based on the recently released independent auditor's reports to the members of PCB, the financial position of the company shows the company generated a profit of RM 99.6 million before taxation for the financial year ending on Dec 2018. This was an increase from RM 39.1 million that was earned in 2016/2017 fiscal year. Profitability analysis highlight that the company has been making consistent profits for the last five years. In 2014, the firm had an operating profit margin of 17.04%, in 2015, it reduced to 16.04%, increased to 23.13% in 2016, dropped to 16.65% in 2017 and for the fiscal year that ended in 2018 it was at 25.32% (PMAS, 2018). In the Kuala Lumpur Stock Exchange, PCB shares are currently trading at RM 3.31 with a volume of 3,273,600 stocks (PMAS, 2018). PCB has improved its internal organization that has helped reshape the firm to promote better segregation of its business responsibilities and operations in offering an automated solution and smart control systems. Liquidity analysis shows the firm's current ratio has been increasing for the past five fiscal years. In 2014, the firm had a current ratio of 1.11, increased to 1.69 in 2015, reached a high of 2.09 in 2016 but dropped to 1.49 in 2017 and it attained an all-time high of 2.38 for the financial year that ended on 2018 (PMAS, 2018). Return on investment analysis highlights that the firm's investment decisions are showing positive returns. In 2012, PCB had a return on equity of 21.35%, which reached 37.81% in 2016 and it is currently at 31.22% for the fiscal year that ended in 2018.

JHM Consolidation Bhd Financial Performance

JHM Consolidation Bhd is an investment holding company that through its subsidiaries, the firm manufactures microelectronics and LED components. The firm has a market capitalization of RM 702.58 million, with volume shares of 33,700 trading at RM 1.26 (JMH, 2019). JHM expects to resume with the strong growth trajectory it has achieved through maiden contributions from its different new segments in life sciences and aerospace. The company has an average return on equity of 22.30% for the past five years. The net profit and sales of the firm have been on the rise, and the firm is performing fairly on the competitive LED industry. Subsequently, from 2015, the firm's revenue and net profit have accelerated especially in its electronic products segments. For the past five years, the revenue of the firm has been on the rise. In 2014, JHM revenue was RM 78.1 million, in 2015 it was RM 131.7, in 2016 it was RM193.4, in 2017 it was RM 249.5, and in the fiscal year that ended in 2018, it was RM 264.9 million (JHMC: MK, 2019). Subsequently, the firm's profit margin has increased consistently for the last five years from 1.6% in 2014, 4.9% in 2015, 10.5% in 2016, 12.2% in 2017 and 13.3% in 2018. Based on JHM 2018 financial position, the firm has a P/E ratio pf 18.50 and a return on equity of 20.03 (JMH, 2019).

The current risk exposure faced by PCB arises from the recent decision by the U.S. to impose tariffs on steel and aluminum products it imports to the country. These tariffs will have unintended consequences to the operations of PCM in exporting automated and semi-automated machinery to the U.S (Pentamaster, 2018). JHM is considered as a firm that has high growth potential, but it is appropriate for investors to be cautions of the risk that lurk in each company. The major risk exposure that faces JHM is it's dependence on primary customers and the possibility of delays in R&D activities that might disrupt the firm's well-being.

Direct Competitors

PCB is among the few automated equipment manufactures in Malaysia that has grown to be a global competitor in the international market. It major customers are multinational companies in the country and export to other regions. There are about five other companies in the automation sector rivaling PCB international competitive advantage, and the majority are located in Penang, Malaysia (Abad, Amalu, Kitamura, Lohan & Simalabwi, 2018). PCB share price has quadrupled to RM2.44 per share that gives the firm a market capitalization of RM772 million, making it a top gainer in the sector. The firm's main company as a top gainer giving PCB stiff competition is JF Technology, which has seen its share price rise by 13%. Firms in the Malaysian semiconductor sector, including JHM, engage in mid to lower end of the value chain through offering foreign services. JHM main competitor is KESM Industries Barhad that has a market capitalization of RM 354.44 million.

In Malaysia, the automation engineering and technological solutions sector are diverse with numerous companies competing in the local and global market (Syed Jaafar, 2019). The firms in Malaysia and its investors are bullish based on the prospects of the sector that is attributed to long-term earnings sustainability that is underpinned by its diversification of products and customer base. The firms in the sector are performing fairly with the revenue forecast at $386 billion for the 2019 fiscal year, which is a 12.3% increase from the 2018 financial year. The firms conduct the majority of their businesses in local markets and the Asian markets, and other exports are made to parts of America, Europe, Middle East, and Africa.

References

Abad, L., Amalu, N., Kitamura, K., Lohan, R., & Simalabwi, A. (2018). The Malaysian Semiconductor Cluster. Paper for course,"Microeconomics of Competitiveness," Harvard University.

JHM Consolidation Barhad (JMH) (2019). Annual report & CG report. Retrieved from: https://www.klsescreener.com/v2/announcements/view/29044426

JHMC: MK (2019). JHM Consolidation Bhd. Bursa Malays. Bloomberg. Retrieved from: https://www.bloomberg.com/quote/JHMC:MK

Pentamaster (2018). Steely decision. Retrieved from http://www.pentamaster.com.my/news-activities/steely-decision/

Pentamaster Corporation Berhad (PCB) (2017). About us. Retrieved from http://www.pentamaster.com.my/about-us/

Pentamaster Corporation Berhad (PCB). (2019). Annual report, 2018. Retrieved from Pentamaster Corporation Berhad website: http://pentamaster.listedcompany.com/ar.html

Pentamaster Corporation Berhad (PCB). (2019). Annual report, 2018. Retrieved from Pentamaster Corporation Berhad website: http://pentamaster.listedcompany.com/ar.html

PMAS (2018). Pentamaster Corporation Bhd (PMAS). Investing.com. Retrieved from: https://www.investing.com/equities/pentamaster-corporation-bhd-ratios

Syed Jaafar, S. (2019). Avilion, Sime Darby, Pentamaster, Sanbumi, PetChem, and JHM. The edge markets. Retrieved from: https://www.theedgemarkets.com/article/avillion-sime-darby-pentamaster-sanbumi-petchem-and-jhm

Teng, L. (2019). Pentamaster conserving cash to grow smart control business. Retrieved from https://www.theedgemarkets.com/article/pentamaster-conserving-cash-grow-smart-control-business