PENTA: Underperforming Results Trigger Rating Adjustment to Neutral

Recent financial results have fallen below market expectations, leading to a significant decline in profitability despite management’s optimistic outlook for future growth. Consequently, the investment bank has adjusted its rating from Buy to Neutral, while maintaining an unchanged target price.

Performance Review

For the nine months ended 3Q25, revenue and core PATAMI (Profit After Tax and Minority Interest) experienced a considerable downturn, declining by 13.8% and 33.8% year-on-year respectively. These figures significantly missed both the investment bank’s and the Street’s forecasts, achieving only 58% and 65% of expectations. This deviation was primarily attributed to a slower-than-anticipated recovery in the automated test equipment (ATE) segment, further exacerbated by timing delays in automotive and electro-optical project deliveries.

While 3Q25 revenue of MYR148.1m remained broadly stable quarter-on-quarter (+2.2% QoQ) and only slightly declined year-on-year (-1.4%), the ATE segment experienced a sharp 53% QoQ contraction. This was partially offset by robust progress billings in the factory automation solutions (FAS) division, which surged by 62.9% QoQ, driven by medical, consumer, and industrial clients. The ATE segment recorded a loss before tax of MYR5.6m in 3Q25, a stark contrast to profits in previous quarters, leading to a lower 3Q25 core PATAMI of MYR14.7m. EBITDA margins compressed to 20.1% from 23.9% due to factors such as lower revenue, higher costs, and diseconomies of scale.

Future Outlook and Investment Perspective

Despite the recent underperformance, management expresses optimism for a stronger FY26, anticipating steady inflows of new orders and emerging growth drivers within the global semiconductor market. The company notes a build-up in order momentum, particularly for new test-handling projects in logic and power sub-segments, with conversion expected by 1Q26. Significant investments in Research & Development are also underway for higher-value test equipment, including wafer inspection and burn-in systems for co-packaged optics, silicon photonics, and logic testing, with commercial contributions targeted for 2H26-FY27.

However, the investment bank believes that the anticipated FY26 earnings recovery is largely priced-in following a strong share price rally. This, coupled with the current mean valuation, leads to a balanced risk-reward profile. The report has adjusted its FY25F earnings forecast downwards by 13.9% due to revised revenue and margin assumptions, though FY26F-27F earnings estimates remain unchanged. Key downside risks identified include slow replenishment of the order book, skilled labour shortages, and unfavourable foreign exchange movements.