RHB Investment Bank (RHB) initiated coverage on Pentamaster Corporation Berhad (Pentamaster) with a BUY rating and a target price of RM 6.16, indicating a 25% upside and a 0.4% FY24F yield. The current market price of Pentamaster’s shares is RM 4.93, giving the company a market capitalisation of USD 745 million.
RHB’s target price is based on a 33x FY25F P/E, which is at +0.5 standard deviations from the five-year mean and includes a 2% premium for its ESG score of 3.1. Analysts Miza Izaimi and Lee Meng Horng expressed optimism about Pentamaster’s near-term earnings potential, driven by increased demand in the factory automation solutions (FAS) segment and recovery in the semiconductor sector.
Pentamaster’s involvement in the automotive market, especially with the rising demand for power semiconductor devices like silicon carbide (SiC), gallium nitride (GaN), and insulated gate bipolar transistors (IGBT), positions it to capitalise on the electric vehicle (EV) boom. SEMI expected a 0.7% quarter-on-quarter increase in capital expenditure spending in 2Q24, following previous declines, which should benefit Pentamaster’s automated test equipment (ATE) unit.
RHB noted that the FAS segment is set to see structural demand growth due to the rising need for automation across various industries and advancements in Industry 4.0. The medical industry is currently the main contributor to this segment’s growth, which Pentamaster aims to leverage further.
The semiconductor sector was anticipated to recover robustly in 2H24 and into FY25, with the global semiconductor market projected to grow by 16% year-on-year to USD 611 billion in 2024, according to World Semiconductor Trade Statistics (WSTS). This growth is driven by increased demand for advanced technologies like 5G, artificial intelligence (AI), and EVs. Additionally, US-China trade tensions may position Pentamaster as a strategic alternative supplier amid export restrictions, enhancing its industry role. Malaysia’s National Semiconductor Strategy (NSS) is expected to drive long-term growth in the semiconductor industry, benefiting companies like Pentamaster.
RHB forecasted a three-year (FY24–26F) earnings compound annual growth rate (CAGR) of 18.2%, driven mainly by the growth of the medical devices unit and recovery in the automotive and semiconductor segments. The group maintained a healthy balance sheet with net cash of RM 490 million (RM 0.69 per share) as of FY23. RHB’s target price of RM 6.16 is derived from applying a 33x FY25F P/E with a 2% premium for its ESG score.
Investors are encouraged to consider Pentamaster shares, given the company’s strong position in the automation and semiconductor markets and its potential for future growth, which could drive the stock price up by 25% to the target price of RM 6.16.
