Investment Highlights

• Maintain HOLD on Pentamaster Corp (Pentamaster) with unchanged forecasts and fair value of RM5.52/share, pegged to a FY22F PE of 33x.

• Key updates from Pentamaster’s 4QFY20 conference call:
• Results summary: FY20 core profit and revenue declined by 14% and 15% YoY respectively due to the impact of lower automated test equipment (ATE) sales which were caused by delays in revenue recognition amid Covid-19 travel restrictions.

This was offset by higher factory automated solutions (FAS) demand, where revenue more than doubled due to the inclusion of contribution from TP Concept as well as higher demand for Pentamaster’s iArms solutions tied to the adoption of Industry 4.0.

• More diversified business: On a YoY basis, the group’s split by product segment and customer segment has become more diversified (Exhibits 1 & 2).
• By customer segment, revenues for all major segments rose except for electro-optical which declined 47% YoY. Although it remains the group’s largest revenue contributor, the group’s more diversified customer base was able to cushion the negative impact of Covid-19 where PBT margins declined by 1.3 ppts YoY to 27%.
• Notable segments include the growth in automotive where contribution expanded to 30% from 14% due to the group’s more diversified solutions. These include silicon carbide and gallium nitrite-based solutions, insulated-gate bipolar transistor (IGBT), AC/DC power inventor and multilayer ceramic capacitors, tied to the growth in electromobility.
• The customer & industrials segment grew largely due to demand for iArms solutions, while semiconductor revenues soared 68% YoY due to the growth in cloud computing and devices to support remote work and learning.
• Meanwhile, the medical segment benefited from TP Concept contribution, where revenues multiplied by 4.5x. On a side note, TP Concept’s profit guarantee has been given an extension up till 31 Dec 2022 due to circumstances relating to Covid-19.

Source: AmInvest Research - 1 Mar 2021