Investment Highlights

• We maintain our BUY call on Pentamaster Corp (Pentamaster) with an unchanged fair value of RM4.64/share, pegged to an FY23F PE of 27x, at parity to the group’s 3-year forward average. We make no adjustment to our neutral 3-star ESG rating (Exhibit 6).

• We retain our forecasts as Pentamaster’s 9MFY22 core net profit of RM65mil (+10% YoY) is largely in line with our and consensus expectations. It accounts for 71% of our and 72% of the street’s FY22F earnings.

• The company recorded a record quarterly revenue of RM156mil (+3% QoQ), on the back of stronger sales from automated test equipment (ATE) and factory automation solutions (FAS) divisions, up +11% YoY compared to the same period last year.

• ATE continued to be the group’s revenue driver, contributing 72% of its topline in 9MFY22. The division’s 9MFY22 revenue grew 21% YoY, mainly attributed to the robust performance of the automotive segment (+2.9x YoY), driven by global vehicle electrification trends. In tandem with the increase in revenue, ATE division’s 9MFY22 PBT improved by 3% YoY.

• QoQ, the ATE division reported lower 3QFY22 PBT of RM102mil (-7% QoQ, +9% YoY), dragged down by the decline in revenue contribution from electro-optical industry and higher employee benefit expenses (share award scheme).

• The FAS division’s 9MFY22 revenue grew 10% YoY following strong demand from the medical device segment, particularly the group’s proprietary i-ARMS (intelligent Automated Robotic Manufacturing System) solutions. This translates into a stronger 9MFY22 FAS PBT of RM26mil (+47% YoY).

• QoQ, FAS PBT grew 2.3x on the back of stronger revenue (+30% QoQ) and better margin due to a favourable product mix.

• All in, we remain positive on the group’s prospects as demonstrated by its commendable results and strategy to ride on the global momentum for automotive electrification. Pentamaster’s robust outlook continues to be supported by its:
  i. Portfolio diversification efforts across market segments and expansion of customer base.
  ii. Growth in FAS supported by the adoption of Industry 4.0.
  iii. Robust automotive offerings, which are able to supply to both front-end and back-end customers.

Source: AmInvest Research - 4 Nov 2022