CGS-CIMB Research revised its FY23 to FY25 earnings forecast for Pentamaster by 4.4% to 9.6%.
PETALING JAYA: Analysts expect Pentamaster Corp Bhd
to experience a slowdown in its automotive segment due to competition from electric vehicles (EVs) that is likely to have an impact on the group moving forward.
CGS-CIMB Research said Pentamaster’s growing medical segment is expected to help cushion any near-term moderation in the group’s automotive segment.
For the nine months of 2023, the automation solution provider saw its core net profit rise by 5% year-on-year (y-o-y) and 47% quarter-on-quarter (q-o-q) in the for the third quarter ended Sept 30, driven by higher revenue from its medical segment but mitigated by higher depreciation expense.
Pentamaster’s results for the cumulative nine months ended Sept 30, 2023 (9M23) lagged both CGS-CIMB Research’s full-year forecast at 63% and the Bloomberg consensus estimate at 58%.
“Despite the automotive revenue growth of 47% y-o-y in 9M23, the 30% q-o-q decline in 3Q23 could be a telling sign of moderating EV demand, given rising interest rates and diminishing subsidy tailwinds,” CGS-CIMB Research wrote in a report.
It believed Pentamaster’s medical segment could mitigate it, as it saw a four-fold sequential revenue growth in 3Q23 to RM64mil – an indication of a significant ramp up in its factory automation solutions (FAS) works for its main medical customer’s new facility in Penang.
“Pentamaster is also in the proposal stage with two medtech customers for its FAS segment as part of diversifying its clientele base and to grow its order book,” the research firm said.
It noted Pentamaster’s other consumer-centric segments continue to post sequential aggregate quarterly revenue declines throughout 9M23, reflecting a prolonged weakness in the broader mobile and semicon industry.
“We share a similar sentiment with its management that order visibility may only improve towards the second half of next year upon the next US-brand new handset launch,” it said.
CGS-CIMB Research revised its FY23 to FY25 earnings forecast for Pentamaster by 4.4% to 9.6% to reflect higher depreciation expenses, lower FY24 and FY25 automated testing equipment revenue due to potential EV slowdown and a slight bump in medical revenue growth projections.
The research firm added upside to its forecast included a sharp recovery in Pentamaster’s electro-optica Automated Test Equipment (ATE) solutions business, rapid market share increase in its medical device and equipment business, and a continued rise in orders for its auto-centric ATE’s.Downside risks include weaker-than expected EV demand, and the inability to replenish its order book for its medical segment. CGS-CIMB Research maintained a “hold” call on Pentamaster with a lower target price of RM5.24 a share.
