• Keep BUY with new MYR5.95 TP from MYR6.16, 29% upside and 0.4% FY24F yield. Post briefing, management has adopted a more conservative tone for FY24 due to the slower-than-expected automotive sector performance. It is now anticipating a flattish YoY revenue, with earnings to be cushioned by slightly better margins. Nevertheless, we remain upbeat on Pentamaster’s outlook as it stands to benefit from the proliferation of power semiconductor devices driven by advancements in AI, automotive electrification, and medical manufacturing automation.

• Automotive segment to remain sluggish. The group's orderbook of MYR400m indicates continued weakness in the automotive segment, with guidance suggesting it will contribute <30% to overall FY24 revenue. We do note the potential upside should orders come in faster than expected, which could slightly boost the group’s earnings.

• Expected contributions. While the medical devices segment will continue to be a key contributor, Pentamaster anticipates a softer 2H, expecting it to account for 35-40% of FY24 revenue (1H24: 45.5%) due to major projects being spillovers from 2023 and deliveries frontloaded in the 1H. Despite the reduced outlook, there are no delays or cancellations from its major customer as its capex plans remain on track. Meanwhile, the semiconductor division is projected to post improved numbers in the 2H, supported by the gradual recovery of the sector, with guidance suggesting a 10-12% share of total revenue. Additionally, the electro-optical industry is expected to maintain its momentum with a contribution of c.10-12%. The remaining revenue will come from consumer and industrial products, where 2H24 is anticipated to remain weak.

• New industry to drive factory automation solutions (FAS) division. Pentamaster plans to carve out a dedicated solar segment, aiming for a low double-digit revenue contribution by 2025. As noted in the previous report, the group is seeing increased integration of automation with renewable energy, particularly in solar manufacturing. It has been actively securing orders in this sector and is committed to supporting the expansion of automation in the solar energy market.

• Maintain BUY. We have revised down earnings by 6%/3%/2% for FY24- FY26, anticipating lower contributions from the automotive side. Our TP is lowered to MYR5.95 based on an unchanged 33x FY25F P/E (+0.5SD of its 5-year mean) and inclusive of a 2% premium based on its 3.1 ESG score. We continue to like Pentamaster due to its diversified exposure across multiple industries, mitigating the risks of sectoral slowdowns and enhancing its market penetration capabilities.

• Downside risks include slow replenishment of orderbook and skilled labour shortages.

Source: RHB Research - 5 Aug 2024