KUALA LUMPUR (Aug 18): CGS-CIMB Research has maintained its “add” call and target price (TP) for Pentamaster Corp Bhd as it expects the latter’s earnings for the second half ending Dec 31, 2020 (2HFY20) to be boosted by a recovery in semiconductor demand and increasing exposure to the automotive segment.
“We retain our earnings forecasts, ‘add’ call and target price of RM4.80, still based on 26 times PER (price-earnings ratio), +0.5 standard deviation (SD) above the three-year semiconductor equipment sector mean of 23 times.” said CGS-CIMB Research analyst Mohd Shanaz Noor Azam in a note yesterday.
“The group is upbeat about stronger sales in 2HFY20, driven by resilient demand for semiconductor test equipment for radio-frequency (RF) chips and printed circuit boards (PCBs) going into personal computers (PCs) and mobile devices,” Mohd Shanaz added.
The analyst said the group also expects a broadening test equipment portfolio for automotives to drive sales in 2HFY20, helped by growing demand for insulated-gate bipolar transistor (IGBT) and silicon carbide (SiC)-based solutions going into electric vehicles (EVs) and railway infrastructure developments in China.
Additionally, Pentamaster is pushing ahead with its diversification into the medical sector, currently setting up the production line and medical consumables prototype for submission to the US Food and Drug Administration (FDA) and the Medical Device Authority (MDA) for approval before starting commercial production.
Pentamaster announced in July that it plans to invest RM60 million in a new division, Pentamaster MediQ, over the next three years that will undertake the design and manufacture of single-use medical devices, medical equipment and related instruments, with dual-safety pen needles and safety IV catheters being its main products, Mohd Shanaz said.
He added that the group expects the medical device segment to contribute 10% to 20% of sales in FY21-22.
“Although Pentamaster’s order book declined slightly from RM230 million in March 2020 to RM215 million in June, the group’s order pipeline remains healthy, given that it is still hovering above RM200 million. Nevertheless, the group attributed the decline in contract liabilities to shorter order visibility, with some customers taking a more cautious approach, and lower deposit collection from some customers more badly affected by the Covid-19 pandemic.
“Hence, overall, the group has been collecting lower deposit payments of 20% to 30% of total contract value, compared with 30% to 40% previously. Meanwhile, the group has also been actively managing its inventory levels, so that they are in line with the shorter lead time cycle, especially in the automated test equipment (ATE) segment.” the analyst said.
He cited rising adoption of 3D sensing applications on smartphones, FDA approval for new medical consumables and new customer wins as rerating catalysts, while delays in 3D sensing adoption on smartphones, delays in FDA approval for new medical consumables and a prolonged Covid-19 pandemic are key downside risks.
Last Friday, Pentamaster announced that its net profit fell 12.94% to RM17.01 million for 2QFY20, from RM19.54 million a year ago, due to a decline in revenue from a lower telecommunications-segment contribution.
At 10.26am today, Pentamaster shares had risen 16 sen or 3.68% to RM4.51, valuing the tech company at RM3.1 billion, with around 1.27 million shares traded so far.
The counter has benefited from the recent tech stock rally, which drove its share price to this year’s highest closing of RM6.85 early this month, but has since erased much of those gains to settle 0.66% lower from RM4.54 year-to-date.