Pentamaster: HOLD Rating and Growth Potential. Insights for Investors

Analysts maintain a “HOLD” recommendation on Pentamaster Corporation with an unchanged fair value (FV) of RM5.50/share, derived from an FY24F PE of 32x.

No adjustments were made to the neutral 3-star ESG rating or earnings forecasts. Key takeaways include a 10% decline in Pentamaster’s current order book to RM550 million in 3QFY23, mainly due to reduced automotive segment orders. The medical segment’s orders increased, resulting in a book-to-bill ratio of 0.7x against FY24F revenue.

The automotive segment’s revenue dropped 30% QoQ in 3QFY23, with expectations of a recovery in demand in 1HFY24. The medical segment is expected to see growth in subsequent quarters, partially offsetting the slowdown in other segments, and expansion plans are in progress.

Pentamaster’s stock is considered fairly valued at its current levels, trading at an FY24F PE of 29x, in line with its 3-year historical average.

“We maintain our HOLD call on Pentamaster Corporation (Pentamaster) with an unchanged fair value (FV) of RM5.50/share, derived from FY24F PE of 32x – 1 standard deviation above its 5-year mean.  We did not adjust our neutral 3-star ESG rating (Exhibit 5) and earnings forecast,” says AmBank.

Pentamaster – Order Book

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Pentamaster’s current order book slid 10% to RM550mil as of 3QFY23 from RM610mil in 2QFY23 mainly due to lower orders from the automotive segment. Orders from the automotive and medical segments account for an estimated 70% of the current total.

“We understand that the new orders from the medical segment were higher than automotive. This leads to a book-to-bill ratio of 0.7x against FY24F revenue. “

On a brighter note, the medical segment will continue to see growth in subsequent quarters, which could partially offset the slowdown in other segments. Management is engaging with 2 new US-based medical technology customers to secure more orders. Development of new medical equipment prototypes for new and existing customers is expected in FY24F and this is likely to see a significant improvement in revenue contribution from this segment in FY25F. 

“We are positive on the medical segment’s growth, which is expected to be propelled by: (i) an increase in orders from the existing customer base from both new and existing medical products as existing customers continue to expand their product portfolio and factory expansions in other countries, and (ii) active expansion of client portfolio to include new customers. 

“The stock is seen as fairly valued at current levels, trading at FY24F PE of 29x, in line with its 3-year historical average.,” analysts say.