CGSI Research expects a small revenue contribution of about 5% in its FY25 to come from new growth areas.
PETALING JAYA: The potential re-rating catalysts for Pentamaster Corp Bhd
include strong order book replenishment from medical customers and automotive recovery.
The downside risks cited by CGS International (CGSI) Research are rising competition and loss of key customers.
It upgraded Pentamaster from a “hold” to an “add,” following the steep share price decline of 35% year-to-date due to broader market weakness.
Operationally, the research house believes Pentamaster could greatly benefit from investments by medical technology (medtech) companies, potential order wins from new areas, as well as bottoming out of the automotive segment.
Its target price is lowered to RM3.40 a share on the assumption of lower sustainable return on invested capital of 17.8% (previous: 21%), implying 23.8 times financial year 2026 (FY26) price earnings ratio, on par with its 10-year mean.
It has cut its FY25 to FY26 earnings per share (EPS) by 13% to 14%, following the weaker-than-expected FY24 financial results.
It assumes strong revenue growth for its equipment segment in FY25 to reflect rising orders for the group’s new known-good-die and burn-in testers catering for the automotive segment.
In the medical segment, the research house projects medical revenue to fall marginally by 10% in FY25 due to tapering off on automation works for its main medtech customer towards the second half of 2025.
But this should be cushioned by new orders from new medtech customers.
CGSI Research expects a small revenue contribution of about 5% in its FY25 to come from new growth areas, particularly in renewable energy and high performance computing, as the group further improves its sales funnel in these areas.
Its estimates imply a three-year FY24 to FY27 EPS compounded annual growth rate of 19%.
Pentamaster’s management in its analyst briefing last month said earnings performance had bottomed out in the fourth quarter 2024, suggesting the businesses across most of its segments should gain traction.
The current medical revenue run-rate is to be sustained in FY25. Its main medtech customer received a warning letter from the United States Food and Drug Administration over manufacturing issues at its US facilities, which could likely lead to more expansion plans in Malaysia, in its view.
Potential order wins from new customers have substantially risen with the imposition of punitive import tariffs by the new US administration on Mexico and China, where most US-based medtech companies have an operational presence.
Pentamaster has so far managed to onboard several new customers, specifically in dental capping and hearing aids.
This could likely head into high-volume manufacturing over the next 12 months, necessitating more automation work from Pentamaster.
