Vitrox Corporation Berhad (“Vitrox”) (KLSE:VITROX) and Pentamaster Corporation Berhad (“Pentamaster”) (KLSE:PENTA) are two automated equipment manufacturers listed on the Malaysian stock exchange.
In this article, we will make some quick-and-dirty comparisons, numbers-wise, between the two companies to help you determine which might give you more value for money.
Introducing the companies
Vitrox designs and manufactures innovative, leading-edge and cost-effective automated vision inspection equipment and system-on-chip embedded electronic devices. Vitrox’s automated inspection systems can be integrated into its client’s industrial systems to check for semiconductor defects, and are widely used in the production of automotive, computing, healthcare, and telecommunications electronics, among others.
On the other hand, Pentamaster operates in three business segments. The automated equipment segment is engaged in designing, development, and manufacturing of standard and non-standard automated equipment. Its automated manufacturing solution segment is involved in the construction and installation of integrated automated manufacturing solutions. Lastly, the smart control solution system segment provides project management and smart building solutions.
The table below shows the market capitalization, revenue and profit levels for both companies. Note that the market capitalisation is as of 17 August 2020, and the revenue and profit numbers both relate to the fiscal year 2019.
|(All numbers in RM)|
|Market Capitalisation||5.64 billion||3.10 billion|
|Revenue||339.59 million||490.10 million|
|Profit after taxation||79.65 million||131.10 million|
|Profit attributed to owners of the company||79.65 million||83.04 million|
Round 1: Profitability
We start by looking at the profitability of each company in terms of their gross profit margin, net profit margin, and return on equity ratio.
|Fiscal year 2019|
|Gross profit margin||Not available||36.58%|
|Net profit margin||23.45%||26.75%|
|Return on equity (“ROE”) ratio||16.51%||13.94%|
Firstly, we are unable to make a gross profit margin comparison between the two companies as this measure was not available from Vitrox’s annual report. Nevertheless, Pentamaster’s net profit margin of 26.75% has edged Vitrox’s net profit margin of 23.45%.
Notwithstanding this, Vitrox’s ROE of 16.51% is higher than Pentamaster’s ROE of 13.94%, and may give the impression that Vitrox’s management is slightly more efficient in allocating and converting every dollar of investor capital into profit. We will award a tie here as both companies have each won one of the profitability metrics calculated in the table above.
Winner: N/A – tie
Round 2: Liquidity
|Fiscal year 2019|
|Net gearing ratio (Net debt / equity)||N/A – net cash||N/A – net cash|
From the table above, we find that both companies have pristine balance sheets. They are inseparable in terms of current ratios – there is nothing much between the ratios of 4.94 for Vitrox versus 4.55 for Pentamaster. But perhaps, Pentamaster has a slightly better cash ratio of 3.37 versus 2.16 for Vitrox.
Additionally, Investors should not be concerned about the liquidity positions of Vitrox and Pentamaster since both companies are in net cash positions. In other words, both companies have sufficient cash to meet all its short and long term debt obligations. Overall, we are impressed by both companies but will award the win to Pentamaster for its better cash position – as at 31 December 2019, the company has net cash of RM419.89 million on its balance sheet compared to the net cash position of RM142.86 million for Vitrox.
Round 3: Growth
We will compare the compounded annual growth rates of revenue and net profit of the two companies for the past 5 years. Companies that can grow their sales and profitability can see their share price rise.
|Fiscal year 2015-2019|
|Net profit growth||15.78%||80.72%|
Pentamaster has superior revenue and net profit growth compared to Vitrox. As investors, we should investigate the factors fueling Pentamaster’ growth and whether such growth is sustainable. We should also understand why Vitrox is growing at a slower pace since both companies operate in the same industry and face similar competitive forces.
Round 4: Valuation
Finally, we will compare the price to earnings (“PE”) and dividend yields of the companies.
|Share price (as at 17 August 2020)||RM11.94||RM4.35|
(Source: Google Finance)
Pentamaster is trading at a cheaper valuation than Vitrox despite having much superior growth rates in revenue and net profits. Investors may wish to find out whether there is sufficient justification for the gap in valuations given that both companies have similar business profiles and operate in the same environment. Since both companies are viewed as growth companies, their low dividend yields are not attractive and may be considered negligible to investors seeking dividends as income.
In summary, Pentamaster is the overall winner here as it has come out on top of 3 of the 4 measurements above. While this is a simple exercise, comparing just a few financial aspects of both companies, it hopefully serves as a good starting point in deciding which company is more interesting to investigate further.
Aside from the financial metrics, we urge investors to carefully study the prospects for each business, and consider the capabilities of each management team in executing their business plans.