Investment Highlights

• We maintain HOLD call on Pentamaster Corp (Pentamaster) with an unchanged (FV) of RM5.50/share based on FY24F PE of 32x – 1 standard deviation above the 5-year mean. We make no adjustments to our neutral 3-star ESG rating (Exhibit 6).

• We maintain FY23-FY25F earnings as 9MFY23 core net profit of RM73mil came within expectations, accounting for 77% of our full year forecast and 72% of consensus estimate.

• YoY, 9MFY23 revenue improved 15% on the back of stronger sales from both automated test equipment (ATE) and factory automation solutions (FAS) divisions. Together with better operating efficiency, this raised 9MFY23 earnings by 13%YoY to RM73mil.

• The ATE division saw a growth of 10% YoY in 9MFY23 revenue. This was driven by a strong revenue growth of 47% YoY in the automotive segment. However, it was partially offset by a decline in segmental sales of electro-optical (-44% YoY) and consumer electrical/industrials products (-47% YoY). The lower revenue for these segments was due to dampened consumer demand amid high inflation and interest rates as well as limited new features to incentivise smart phone upgrades.

• The FAS division’s 9MFY23 revenue rose 30% YoY following stronger demand from the medical segment (+92% YoY) as well as higher orders for its i-ARMS (Intelligent Automated Robotic Manufacturing System).

• QoQ, 3QFY23 revenue grew 2% to RM180mil due to stronger FAS sales (+2.2x QoQ), which cushioned the decline in ATE revenue (-34% QoQ). Its FAS division’s revenue surged 2.9x QoQ mainly due to strong i-ARMS demand from the medical devices industry segment. 3QFY23 core net profit improved by 29% QoQ due to absence of unrealised forex gain of RM5mil compared to the preceding quarter while FAS PBT margin rose 30%-point to 32% due to the substantively stronger revenue, improved economies of scale and favourable changes in product mix with higher margins.

• Moving forward, we remain positive on the group’s long-term prospects that continue to ride on the revenue momentum of the automotive and medical technology (medtech) sectors. The group will focus on expanding its footprint in Japan and Germany to provide silicon carbide (SiC) wafer burn-in equipment as both countries are the leaders in high-end automotive technology.

• The company also leverages on its i-ARMS to provide automated solutions which streamline clients’ operational efficiency and support medical services. We believe that both automotive and medtech segments will be able to cushion the slowdown in the electro-optical and consumer electrical/industrials products segments due to soft consumer sentiments.

• The stock is seen as fairly valued at current levels, trading at 29x FY24F PE, in line with its 3-year historical average.

Source: AmInvest Research - 3 Nov 2023