As part of a broader privatisation plan, Pentamaster Corporation Berhad (PCB) is acquiring an additional 7.1% stake in its subsidiary, Pentamaster International Limited (PIL) for a net cash outlay of RM34mil. The transaction is accretive, as it values PIL at an implied FY25F PE of 9.4x. vs. PCB's current FY25F PE of 31x. Its new partner, Achi Capital, a private equity firm can add value via potential new customer leads. We raise earnings by 4-9% and TP to RM3.80 (from RM3.50). However, we maintain HOLD, as share price has reacted ahead of PIL's suspension and could instead be pricing in a full privatisation by PCB, in our view.

• Retain Hold at higher TP of RM3.80 (from RM3.50). This is based on a target PE multiple of 24x and higher CY26 EPS. Assuming the transaction is completed in mid-2025, we raise earnings by 4-9%, to reflect an increased 71% stake (from 63.9%) in PIL. PIL is the main contributor to PCB's revenues and profits.
• Acquiring additional 7.1% stake in PIL. After including the special dividend it will receive, PCB will have to pay a net amount of RM34mil for the additional stake. Together with Puga Holdings Limited, PCB is privatising its subsidiary, PIL, at an offer price of HK$1.00/share (cancellation price of HK$0.93/share and special dividend of HK$0.07/share). This represents a 25% premium to PIL's last closing price or an implied FY25F PE of 9.4x. After the proposed exercise, PCB and Puga will own 71% and 29% of PIL, respectively.
• New partners could generate valuable customer leads. Achi Capital is a private equity firm that manages assets totaling US$723mil. They focus on global semiconductor and technology companies, which includes ITH Corporation, Alchip Technologies and DigitalLand Holdings Limited. Puga Holdings is 84.4% owned by Achi Capital (via Beacon Path and Supari), 6% by Mediatek (via Digimoc Holdings), 3.6% by United Microelectronics Corporation (via Fortune Venture Capital Corporation), 3% by Chen Hsin-Yu and 3% by Chen Hsin-Tso.
• Market appears to be pricing in full privatisation by PCB. As we only expect a +9% FY26F earnings bump under this scenario, there could be some near-term share price softness. The share price of PCB increased by +24%, since PIL was suspended on 4th December. In our view, share price could have been pricing in a full privatisation of PIL by PCB, which would have potentially been more short term accretive (+44% to FY26F earnings). 

Source: AmInvest Research - 20 Dec 2024