GEORGETOWN: Pentamaster Corp Bhd, which provides automation solutions to manufacturing industries globally and counts China as its biggest export market, said it will not be affected by the economic slowdown in the country.

According to data released by information technology research company Gartner Inc, worldwide mobile phone sales are projected to slow down due to weaker sales in China, the world’s largest smartphone market.

However, Pentamaster executive chairman Chuah Choon Bin said this will not affect the group, as the group is striking out in areas that are as yet not fully tapped or explored, including in-flight catering and the oft-touted Internet of Things (IoT) network.

“We are not pursuing a red ocean strategy. Instead, we are looking at creating uncontested market space in China by staying ahead in the technology game. For example, when the Chinese market releases a new generation smartphone, Pentamaster is there to provide the testing solutions for it,” he told DigitalEdge Daily in an interview recently.

The group is also confident of growing its order book — which now stands at approximately RM43 million — to RM100 million by the end of the year. Further, it anticipates that for its financial year ending Dec 31, 2015 (FY15), top line will rise by 20%. It is also expecting to maintain its double-digit profit margin.

“For our FY14, we delivered revenue of RM81.05 million. For FY15, we target to increase this by 20% to approximately RM100 million, because we believe we have the right technology and product.

“On top of that, be it in Malaysia or other countries, finding cheap labour is always an issue. Therefore, manufacturers tend to jump on the automation bandwagon for their processes — and that is where we come in,” said Chuah.

For its second quarter ended June 30, 2015 (2QFY15), Pentamaster’s net profit jumped 102.3% to RM3.25 million from RM1.61 million in 2QFY14, due to a better product mix with a higher margins.

“We are not expecting to deliver the same kind of net profit growth of 102.3% in the second half of the year... A key to our improved financials in 2QFY15 was that we managed to make a good profit margin. What we can say for the remaining two quarters of the year is we are looking at maintaining that same kind of profit margin, at around 12%,” said Chuah.

Pentamaster is primarily in the provision of standard and customised automation testing equipment for semiconductor industries, which take up 50% of the group’s revenue. It also provides automation equipment for the gloves industry, which makes up approximately 15% of its revenue.

“Our focus for the glove industry is medical and surgical gloves and our customers are multinational glove makers. We have also ventured into the food industry, with the provision of automated equipment for airline in-flight catering,” Chuah shared.

As mentioned, the group has also gone into the IoT market, which has seen heated interests on the back of the growing interconnectedness of things and devices.

“This year, we have ventured into the provision of smart home system, which involves the automation of home appliances such as heating, ventilation and air-conditioning,” he added.

Pentamaster has also set aside RM15 million as capital expenditure for its factory in Seberang Perai, which is scheduled to commence operations by the end of 2016.

The group, in March this year, purchased a 3.23 acre (1.3ha) leasehold land from the Penang Development Corp for RM5.02 million to build the factory.

“Currently, the utilisation rate for our Bayan Lepas plant, which has both research and development as well as manufacturing activities, is at around 90%. With this new factory coming on board, we foresee capacity increasing by a further 50%,” said Chuah.

Meanwhile, being an exporter, Chuah said the group stands to gain from the continued weakening of the ringgit against the greenback.

“However, bear in mind that we also import some of our components in US dollars. Still, to an extent, the weak ringgit is beneficial to us,” he said.

Pentamaster (fundamental: 2.4; valuation:1.1)’s counter, like other technological stocks this year, has been gaining investor interest. Its improved financials also attracted attention. Year to date, its share price has risen some 118% to 82 sen last Friday — from 37.5 sen on Jan 2. Its current price gives it a market capitalisation of RM108.6 million.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in digitaledge Daily, on August 10, 2015.