KUALA LUMPUR (Nov 7): CGS-CIMB kept its "hold" call on Pentamaster Corp Bhd, with a lower target price (TP) of RM5.24, with analysis of the cumulative nine-month financial results and a recent briefing suggesting a slowing growth trend in the automotive sector, due to increasing competition in electric vehicles (EVs).
The research house said that notably, Pentamaster’s results for the cumulative nine months ended Sept 30, 2023 (9MFY2023) lagged both its full-year forecast at 63% and the Bloomberg consensus estimate at 58%.
Despite a 47% year-on-year growth in 9M automotive revenue, the 30% quarter-on-quarter decline in the third quarter (3QFY2023) could be a telling sign of moderating EV demand, given the environment of rising interest rates and diminishing subsidy tailwinds.
“That said, we believe this could be cushioned by the medical segment, which saw a fourfold sequential revenue growth in 3QFY2023 to RM64 million, an indication of a significant ramp-up in its factory automation solutions (FAS) works for its main medical customer’s new facility in Penang,” it said.
CGS-CIMB said Pentamaster is also in the proposal stage with two medical technology customers for its FAS segment, part of efforts to diversify its clientele base and grow its order book.
Meanwhile, the other consumer-centric segments continued to post sequential aggregate quarterly revenue declines throughout 9MFY2023, reflecting a prolonged weakness in the broader mobile/semiconductor industry.
CGS-CIMB share a similar sentiment with the management that order visibility may only improve towards the second half of FY2024, upon the next US-brand handset launch.
As such, the research house revised its FY2023-25 earnings per share estimates downwards by 4.4% to 9.6% to reflect higher depreciation expenses, lower FY2024-25 automated testing equipment revenue due to potential EV slowdown, and a slight bump in medical revenue growth projections.
Pentamaster last closed unchanged at RM4.91, translating into a market capitalisation of RM3.5 billion.
