Quality-Value Investing

Marc Melendez, CFA

Emerging Market Small and Mid Cap Equities

Reperio Capital

Reperio Capital Research was founded in 2013 with the goal of better serving the investment community with in-depth, high quality, value oriented research.

Reperio means to discover in latin. Using value investing principles, we aim to discover a minimum of 12 investment opportunities per year within the Emerging Markets Small and Mid Cap universe.

We take a business owners perspective with a long term investment horizon. We conduct bottom up, fundamental research. We focus on downside risks and require a significant margin of safety in any investment to prevent the permanent loss of capital. All factors differentiating our research from the short term, trading focus of traditional research providers.

Equity Bottom-Up

Pentamaster International / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/pentamaster-international-ltd" target="_blank" data-smartkarma-citation="entities:31099:1" rel="noopener">Pentamaster International (1665 HK)</a> is a Malaysian company spun-out of Pentamaster Corporation and listed in Hong Kong in January 2018. It sells automated test equipment and factory automation solutions.Due to the adoption of 3D sensors within smartphones, it is seeing a strong increase in sales with its revenue growing by 45% per annum from 2014 to 2019. 3D sensing is at the early adoption stage and should grow rapidly over the next five years. Pentamaster has a strong relationship with its customers, creating customized products with customers often more than one year ahead of the final sale. The company continues to expand its product offering to diversify across sectors and throughout the value chain.Pentamaster has a healthy financial position with net cash equal position. It is also very profitable with a five-year average return on invested capital of 65.7%. Due to minimal investment requirements, ROIC increased from 16% in 2015 to 132% in 2019. There are no corporate governance concerns.Despite Pentamaster’s quality and growth, there is 98% upside to base-case 2025 fair value per share of HKD3.33. The pandemic has caused production and installation delays causing the sales in the first nine months to fall by 15%. The company believes its long-term growth outlook is only temporarily impacted by the pandemic.The combination of growth and valuation makes Pentamaster International an attractive investment opportunity. Pentamaster International is preferred over <a href="https://www.smartkarma.com/entities/pentamaster-corp-bhd" target="_blank" data-smartkarma-citation="entities:15302:1" rel="noopener">Pentamaster Corp (PENT MK)</a> due to its valuation. Pentamaster International trades at 13 times 2019 earnings, while Pentamaster Corporation trades at 42 times 2019 earnings. Because of its recent listing, Pentamaster International is not as well known by investors in Hong Kong. There is also the cross-border listing, which typically leads to a discount.

Pentamaster International (1665 HK) is a Malaysian company spun-out of Pentamaster Corporation and listed in Hong Kong in January 2018. It sells automated test equipment and factory automation solutions.Due to the adoption of 3D sensors within smartphones, it is seeing a strong increase in sales with its revenue growing by 45% per annum from 2014 to 2019. 3D sensing is at the early adoption stage and should grow rapidly over the next five years. Pentamaster has a strong relationship with its customers, creating customized products with customers often more than one year ahead of the final sale. The company continues to expand its product offering to diversify across sectors and throughout the value chain.Pentamaster has a healthy financial position with net cash equal position. It is also very profitable with a five-year average return on invested capital of 65.7%. Due to minimal investment requirements, ROIC increased from 16% in 2015 to 132% in 2019. There are no corporate governance concerns.Despite Pentamaster’s quality and growth, there is 98% upside to base-case 2025 fair value per share of HKD3.33. The pandemic has caused production and installation delays causing the sales in the first nine months to fall by 15%. The company believes its long-term growth outlook is only temporarily impacted by the pandemic.The combination of growth and valuation makes Pentamaster International an attractive investment opportunity. Pentamaster International is preferred over Pentamaster Corp (PENT MK) due to its valuation. Pentamaster International trades at 13 times 2019 earnings, while Pentamaster Corporation trades at 42 times 2019 earnings. Because of its recent listing, Pentamaster International is not as well known by investors in Hong Kong. There is also the cross-border listing, which typically leads to a discount.

Pentamaster International (1665:HK): An Undervalued Beneficiary of Long Term Growth Trends