Pentamaster set to ride on robust medical segment

PETALING JAYA: Pentamaster Corp Bhd’s earnings prospects in 2024 are expected to remain solid, underpinned by the robust outlook within the medical segment.

Phillip Capital Research said it is reassured by Pentamaster’s prospects, bolstered by stronger order visibility from its medical device customers.

It said the medical segment witnessed strong growth, which now made up 46% of its first quarter ended March 31, 2024 (1Q24) revenue and accounts for over 50% of Pentamaster’s outstanding order book of RM400mil.

The research house anticipates improving contribution in 2Q24, driven by higher incoming orders from existing clients amid capacity expansion and new customers.

“The medical segment is expected to contribute between 30% and 35% of Pentamaster’s 2024 earnings prospects, supporting overall earnings growth,” it said.

Pentamaster is currently operating at full capacity at its Bayan Lepas (Plant 1) and Batu Kawan (Plant 2) plants in Penang. Plant 1 has a built-up area of about 150,000 sq ft, while Plant 2 covers 97,000 sq ft.

Phillip Capital Research said the group’s upcoming expansion of Campus 3, spanning 720,000 sq ft and scheduled for completion in 1Q25, will accommodate the growing demand from the medical segment.

Meanwhile, the research house expects Pentamaster’s stronger medical orders and gradual recovery of the electro-optical segment to offset the prolonged automotive and semiconductor weakness.

According to the research house, Pentamaster’s automotive segment continues to face prolonged weakness, with 1Q24 revenue contracted by 24% quarter-on-quarter (q-o-q) due to softening market demand and reduced capital expenditure spending by component players.

“The introduction of newly launched known good-die testers will help cushion the subdued demand for wafer-level burn-in testers,” it said.

Phillip Capital Research added that Pentamaster expects its automotive segment to account for less than 30% of 2024 revenue, down from a peak of 48% in 2023.

On the semiconductor segment, which experienced a 69% q-o-q revenue decline, Phillip Capital Research anticipates sustained support from legacy chip-handling products, with future growth expected through the introduction of new test equipment.

“Elsewhere, the better electro-optical segment outlook is expected to partly mitigate the weakness of automotive and semiconductor segments,” it noted.

The research house also highlighted that 1Q24 revenue for the electro-optical segment improved by 101% q-o-q, attributed to the successful delivery of its new enhanced flagship smart-sensor test device, with further recovery anticipated in the subsequent quarters.

Overall, Phillip Capital Research expects factory automation solutions, which commands the higher margin, to continue supporting Pentamaster’s near-term earnings growth.

“We remain positive on Pentamaster’s prospects, underpinned by stronger medical order visibility,” it noted.

The research outfit has reiterated its “buy” call on Pentamaster, with a target price of RM6.23 per share.

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