Pentamaster showing signs of a rebound after hitting year low

Pentamaster Corporation Bhd has been on a declining trend in the past year. The counter plunged to a year low of RM3.42 on Sept 11 but it has seen a rebound. The company is currently trading at a PE ratio of 31.4x and P/NAV ratio of 3.6x, which are higher than most peers.

The company had been consistently profitable in the past 5 financial years. Net profit decreased from RM83.0mil in FYDec19 to RM70.9mil in FYDec20, but rebounded to a high of RM89.1mil in FYDec23. The increase in net profit from FYDec20 was driven by higher revenue.

In the recent three quarters, the company’s results had been inconsistent. Total net profit during the period was lower year-on-year. The year-on-year deterioration was caused by poorer margin. Nevertheless, Pentamaster is expected to post a better second-half performance.

Analysts favour Pentamaster due to its expanding presence in the medical devices industry, which offsets the slower-than-expected automotive recovery and mitigates the cyclical nature of the semiconductor market.

Pentamaster's core net profit for the first half ended June 30, 2024 (1HFY2024) was RM40.3 million, which was 20.3% higher year-on-year (y-o-y).

Revenue of RM342.2 million for 1HFY2024 was flat y-o-y due to a slow automotive recovery, but this was cushioned by higher revenue from the medical devices segment.

Pentamaster’s order book was maintained at RM400 million, with subdued demand from the automated test equipment segment, while the recovery of orders in the automotive sector was slower than expected.

The division’s revenue declined 4.2% q-o-q and 53% y-o-y to RM69.8 million largely due to the general softness in the automotive end-market.

Profit before tax margin dropped to 6% on lower sales volume, increased employee expenses, provisions for slow-moving inventories, and higher research and development expenditures.

Despite this, the automation solutions provider, leveraging on its proprietary intelligent Automated Robotic Manufacturing System technology, has seen y-o-y revenue growth in the medical devices industry, due to the prevalence of automation solutions.

Quarterly core net profit rose to RM23.2 million (+36.1 q-o-q; +92.2% y-o-y) attributed to margin improvement in the factory automated solutions segment, because of favourable changes in the product mix and economies of scale.

Pentamaster is financially sound, with a debt-free balance sheet, backed by cash holdings of RM447.6mil (or 63 sen per share) as of end-Jun 2024.