Investment Highlights

• We initiate coverage on Pentamaster Corporation (Pentamaster) with a BUY recommendation. Our fair value of RM4.45/share is pegged to an FY21F PE of 19x, in line with its peer local equipment makers’ average forward PE.

• We expect the group to register core net profit earnings of RM99mil, RM111mil and RM124mil respectively for FY20F, FY21F and FY22F.

• Pentamaster is a back-end automated test equipment (ATE) maker in the non-memory ATE and test handlers’ market. According to the group, test handlers account for 10–12% of the back-end ATE market.

• Pentamaster is projected to achieve an impressive profit CAGR of 14% from FY19–FY22F riding on the growth in both its automated testing equipment (ATE) and factory automated solutions (FAS) segments, which in turn is driven by growth in key markets such as telecommunications and automotive.

• The following are Pentamaster’s key investment merits:

i) Growth driven by the telecommunications and automotive sectors and adoption of Industry 4.0 to benefit consumer and industrial product markets;

ii) Revenue growth underpinned by its broadening exposure in 3D sensing technology in VSCEL;

iii) Margin expansion amid efforts to diversify across other business segments and customers;

iv) Aggressive expansion into the medical segment via its acquisition of TP Concept Sdn Bhd.

• We believe that Pentamaster’s medium-term prospects remain positive, despite expectations that its 1QFY20 would be impacted by Covid-19 as the group anticipates a V-shaped recovery in subsequent quarters based on its current order visibility.

• We like Pentamaster due to its positive growth prospects supported by demand for more smart sensors in devices, the upcoming 3D sensing technology wave, trend towards autonomous cars and electric vehicles (EVs) and the adoption of Industry 4.0.

Source: AmInvest Research - 31 Mar 2020