Pentamaster Corp Bhd’s growth in its medical segment could cushion the near-term demand moderation in automotive, according to CGS-CIMB.
The research house retains its HOLD call, with GGM-based TP lowered to RM5.24 as it cuts FY23-25F EPS by 4-9%.
“We cut our FY23F-25F EPS by 4.4-9.6% to reflect higher depreciation expense, lower FY24-25F automated testing equipment (ATE) and a slight bump in our medical revenue growth projection, given the encouraging 3Q23 showing.”
At 32.6 times, FY24F P/E, it believes the market has adequately reflected its growth potential in the medical segment, as the stock has re-rated substantially from its pre-pandemic FY15-19 average of 14x given the change in revenue mix into higher-growth areas.
CGS-CIMB said its overall read on 9M23 results and the analyst briefing seems to pinpoint towards moderating growth in automotive as EV competition intensifies.
“Despite the automotive revenue growth of 47% year-on-year (YoY) in 9M23, the 30% quarter-on-quarter (QoQ) decline in
3Q23 could be a telling sign of moderating EV demand, given rising interest rates and diminishing subsidy tailwinds.
“That said, we believe this could be cushioned by the group’s medical segment, which saw a fourfold sequential revenue growth in 3Q23 to RM64 million.
“(This is) 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 medical technology customers for its FAS segment,” it said, adding new customer acquisitions are important to build orderbook and reduce revenue lumpiness.
Meanwhile, the research house said its other consumer-centric segments continued to post sequential aggregate quarterly revenue declines throughout 9M23, reflecting a prolonged weakness in the broader mobile and semis industry.
“We share a similar sentiment with the management that order visibility may only improve towards 2H24 upon the next US-brand new handset launch.
It added Pentamaster’s core net profit (ex-unrealised forex loss of RM5.2 million and derivative gains of RM2.3 million) rose by 5% YoY and 47% QoQ in 3Q23.
The results lagged both its and Bloomberg consensus estimates, making up just 63% and 58% of full-year forecasts, respectively.
CGS-CIMB said upside risks include sharp recovery in its electro-optical and rapid market share increase in its medical device and equipment business, and while downside risks are weaker-than-expected EV demand, and inability to replenish orderbook for its medical segment.
