PENTA: Advanced Packaging & FAS Drive Strong Outlook, BUY Rating Maintained

Analysts at PhillipCapital have maintained their “BUY” rating for the company, reiterating a target price of RM3.95 per share, as they foresee a robust outlook for 2026. This positive sentiment is primarily driven by strong anticipated growth in the Factory Automation Solutions (FAS) segment, despite a slight year-on-year revenue decline recorded in 2025.

Performance Review and Strategic Initiatives

While the group experienced a 6% year-on-year revenue decline to RM584 million in 2025, management has made significant progress in diversifying its customer base. The concentration of the top five customers has been successfully reduced to below 50% for the first time, signaling a healthier revenue distribution. The current order book stands at a substantial RM400 million, with the FAS segment accounting for approximately 55% of this total. This FAS growth is primarily fueled by strong demand from the medical (35%) and consumer/industrial (20%) sectors. The remaining 45% of the order book originates from the Automated Test Equipment (ATE) segment, supported by the automotive (25%) and semiconductor (15%) end-markets.

Future Outlook and Growth Catalysts

The positive outlook for 2026 is bolstered by sustained double-digit revenue growth in the consumer/industrial segments, underpinned by strong demand from data centre-related projects. Additionally, the medical segment continues to show promise following the successful onboarding of two new customers. A significant growth driver is the early traction seen in advanced packaging solutions, particularly wafer 3D inspection. These solutions have already secured three orders, with further customer adoption anticipated in the second half of 2026.

Beyond 2026, the company’s long-term growth trajectory is reinforced by its deepening product roadmap, which includes nine advanced packaging solutions designed for the structurally growing Artificial Intelligence (AI) and Silicon Photonics (SiPh) markets. Management aims for RM715 million in revenue for 2026, an acceleration from new product ramps, and maintains confidence in achieving its RM1 billion revenue aspiration by 2027.

Key Risks and Regulatory Update

A near-term consideration is the expiry of the pioneer tax status in April 2026. Management has submitted renewal applications for both ATE and FAS segments, with an outcome expected by March 2026. A successful renewal is vital as it would cap the effective tax rate at an attractive 5-10% in 2026. Key risks to the investment call include a potential sharp appreciation of the Malaysian Ringgit against the US Dollar, lower-than-expected margins, unfavorable updates regarding the pioneer tax status, and weaker-than-expected customer orders.