• Diversification plans pay off with handsome returns. An established automated equipment manufacturer with diversified exposures to various sectors. To recap, over the last 5 years, PENTA has developed new automation solutions, smart device test solutions and intelligent robotic manufacturing system and products for industries other than the semiconductors, such as medical gloves, F&B, LED, logistics, consumer electronics and smart home & building solutions.
   
• Strong US$ is a boon for PENTA. PENTA is also a beneficiary of the strong US$ (vs. RM) as approximately 80% of its revenue is denoted in US$ against 20% of its raw materials costs denominated in US$. To recap, RM has weakened against US$ by 3.7% mom, 9.2% qoq and 1.3% YTD to 4.3497 yesterday.
   
• Steeply oversold. From a 10-year high of RM1.57 on 26 Oct, PENTA’s share price tumbled 16.6% to a close at RM1.31 yesterday. Currently, PENTA is trading at cheap valuations of trailing 6.9x P/E (40% below peers’ 11.6x) and 2x P/B (31% discounts against peers’ 2.8x). We believe such valuations have provided a sufficient margin of safety and cushion further sharp share price decline, supported by steeply oversold daily indicators. We expect Penta to find a floor near RM1.24 (61.8% FR) - RM1.29 (70-d SMA) territory and trending sideways briefly before staging a technical rebound.
   
• A decisive close above immediate resistance at RM1.36 (50-d SMA and 38.2% FR) will spur prices higher to RM1.45 (23.6%) before reaching to our LT objective at RM1.57. Cut loss at RM1.21.

Source: Hong Leong Investment Bank Research - 17 Nov 2016