• An established automated equipment manufacturer with diversified exposures to various sectors such as semiconductor industry (contributed 60- 70% of sales), medical devices, F&B, LED, wireless, commercial products, automotive etc. PENTA is also a beneficiary of the stronger US$ (vs. RM) as over 70% of its revenue is denoted in US$ against approximately 30% of its raw materials costs are denominated in US$. To recap, Ringgit had depreciated 21% YTD against the greenback.
• 2Q15 results review. Management is generally optimistic of its business prospects in 2H15 especially with the emergence of Internet of Things which has arisen on the back of the growing interconnectedness of things. Smart electronic devices are the key driving force behind the semiconductor growth in 2015 and therefore, more sophisticated test solution is required for the manufacturing of these smart devices. Within this context, new product introduction will continue to be an important agenda to enhance cus tomers’ accessibility to more innovative and quality product offerings.
• Grossly oversold. From YTD high of RM0.915 on 24 July, PENTA’s s hare prices tumbled 32.2% to a low of RM0.62 on 25 Aug before closing at RM0.66 yesterday, tracking broader market carnage amid external and internal concerns. At RM0.66, PENTA is trading at undemanding valuations of trailing 9.7x P/E (35% below peers’ 15x) and 1.3x P/B (42% dis counts agains t peers’ 2.3x). We believe such valuations have provided a sufficient margin of safety and cushion further sharp share price decline, supported by grossly oversold daily indicators.
• Currently, the stock is consolidating in a bullish flag pattern. If PENTA share prices can swing past immediate resistance near RM0.70 (10-d SMA), the next upswing should lift prices towards RM0.725 (downtrend line and 100-d SMA) and RM0.745 (50% FR) levels. A decisive breakout above RM0.745 will spur prices higher towards to medium term targets of RM0.785 (38.2% FR) and LT objective at RM0.835 (23.6% FR) levels. Aggressive traders may start to nibble now. Key supports are RM0.62 and RM0.59 (200-d SMA). Cut loss at RM0.58.

Source: Hong Leong Investment Bank Research - 3 Sep 2015