Electrification the way to go for Pentamaster

Pentamaster factory

PETALING JAYA: Analysts are optimistic on Pentamaster Corp Bhd’s long-term growth prospects despite the weak sentiment in the global technology sector and the near-term market volatility.

The automation solutions and services provider’s net profit for the first quarter ended March 31, 2022 (1Q22) rose to RM20.4mil from RM16.07mil a year ago.

Revenue also increased by 26.8% to RM146.02mil, mainly due to contributions from its automated test equipment and factory automation solutions segments.

However, the company’s share price has declined 46% year-to-date.

CGS-CIMB Research said that Pentamaster will continue to ride on the accelerating electrification trend and growing adoption of silicon carbide (SiC) and gallium nitride (GaN) compound semiconductors.

“Pentamaster targets mid-teen topline growth in the financial year ending Dec 31, 2022 (FY22) on strong demand for high power modules going into electric vehicles, trains and consumer electronics.

“It aims to raise the revenue contribution of its auto segment to 30% by forecast end-2022,” the research firm said in a report.

Apart from this, the group expects demand in the auto segment to be driven by a growing customer base and more recurring orders for its wafer burn-in and test solutions for SiC and GaN compound substrate and back-end solutions for power management integrated circuits, such as insulated-gate bipolar transistor and AC-DC converters.

CGS-CIMB Research is keeping an “add” call on Pentamaster, but with a lower target price of RM4 as it updates its target price-to-earnings (PE) multiple from 26 times to 24.8 times to reflect the recent pullback in the technology sector valuation.

Meanwhile, UOB Kay Hian (UOBKH) Research has upgraded the stock to a “buy” with an unchanged target price of RM4 based on 31 times PE of forecast FY22.

“Since our downgrade in late-January 2022, the share price has corrected 26%, which we believe has fairly priced in the negatives,” it added.

UOBKH Research noted that the group’s order book backlog stood at an all-time high of RM500mil, which was made up mainly of high-margin automobile orders.