The group derives the bulk of its revenue from ATE (80%), catering mostly for the telecommunications, semiconductor and automotive sectors.
The research house said on Tuesday Pentamaster’s revenue is arguably recurring in nature given that the average upgrade cycle of its products is two years and it derives circa 20% of its revenue from after-sales maintenance/services.
“Due to the complexity and high value add, the company’s products command commendable profit margins – GPM ranged 28%-32% in the past three years,” it said.
AmInvest Research believes two main growth drivers for Pentamaster this year are smart sensors used in mobile devices and semiconductor components used in electric vehicles (EVs), e.g. power inverters and multilayer ceramic capacitors (MLCCs).
The deployment of 3D sensors in mobile devices is expected to proliferate, sparked by the technology’s adoption by a prominent smartphone player – thus requiring more ATE.
In addition, the growing popularity of EVs and its semiconductor content is also expected to fuel the demand for ATE.
The research house pointed out that for the AMS segment, the group expects an increase in revenue contribution from 14% in FY17 to circa 25% this year, underpinned by AMS used for the production of consumer electronics and single-use medical devices, e.g. syringe.
“On top of potential new sales, the group has thus far secured purchase orders worth more than RM300mil, the entirety of which is expected to be recognised this financial year.
“This is significantly higher than an order book of circa RM90mil in the beginning of FY17. In light of that, management has guided a robust double-digit growth this financial year,” it pointed out.
AmInvest Research also pointed out that due to significant business growth in FY17, the group has recently acquired a plot of land in Batu Kawan to build a new production plant. It will have a production space of approximately 47,700 sq ft and this will triple its existing production space of 23,500 sq ft.
The plant is expected to start operations in June 2018 and will mainly be used for the production of AMS.
“The company’s FY17 PE of 17.6 times appears severely undervalued when compared with its peers. Currently, Vitrox trades at 29.9 times, Fanuc at 29.0 times and Kuka at 41.3 times,” it said.
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