Company profile

Pentamaster Corporation Berhad (PCB) is a manufacturer of automated test and factory automation equipment. It serves customers from a broad range of industries, including telecommunications, consumer, semiconductor, automotive and medical.

The group sets itself apart, by being able to offer customised solutions. This allows it to create sticky relationships with customers and also command premium margins.

PCB owns 71% of Pentamaster International Limited, which is its main subsidiary that is listed on the Main Board of The Stock Exchange of Hong Kong.

Mr. Chuah Choon Bin is the Executive Chairman and co-founded Pentamaster in 1991. He is a professional engineer and prior to setting up the group, served as an automation engineer for National Semiconductor and Intel Technology Malaysia.

Demonstrating its adaptability, the group constantly reinvents itself. By anticipating future trends to remain relevant, revenue drivers have evolved over the years from smartphone to automotive to medical devices.

Production facilities are primarily located in Penang, while the group also has sales and technical support offices in the US, Singapore, Japan and Germany.

Investment thesis and catalysts

Slowdown in growth. Order book has plateaued over the past few quarters and a meaningful recovery is not expected until 2H25. Being a forward indicator, share price is primarily driven by order book, which provides a preview of upcoming results.

While medical devices revenues have exhibited strong growth, we expect it to normalise in 2025. Meanwhile, a recovery in automotive revenues is also expected to be more gradual than anticipated.

Proxy to FDIs (foreign direct investments). Medical devices revenues have grown, partly driven by FDIs into Malaysia, where it currently serves a blood glucose monitoring customer. As MNCs set up their factories in Malaysia, the group’s factory automation solutions segment is a capex beneficiary. Building on its expertise, the group has expanded its customer base to more than five medical devices customers now.

Held back by overcapacity in SiC (silicon carbide) sector. One of the group’s flagship products is its wafer level burn in systems, catering for SiC power devices. An EV slowdown and a previous rush to expand capacity has resulted in overcapacity in the SiC sector. This is amplified by geopolitical tensions, causing customers to be more cautious and delaying expansion plans.

Valuation methodology

We value Pentamaster at a target PE of 24x and blended CY26/27 EPS, to capture a 12-month forward view. Our target PE is based on one standard deviation below the group’s 5-year average.

We think this is appropriate, until the group is able to secure new concrete revenue growth drivers. We expect medical devices revenue growth to normalise, coupled with a more gradual recovery for its automotive revenues.

Risk factors

Being a capex beneficiary, revenue growth is contingent on its customer’s expansion plans. As customers cannot expand perpetually and usually need time to digest new capacity, it is important that Pentamaster maintains a large customer base and continues to source for new customers.

Currently, the group’s revenues are mainly exposed to medical devices and SiC. Hence, any developments relating to both these industries could impact the outlook of the group.

Another key risk is currency, where we estimate, every 1% increase/decrease in the USD/MYR rate increases/decreases earnings by 3%.