• Maintain BUY, new MYR5.10 TP (from MYR5.95), 38% upside, c.1% yield. Management noted a more cautious 1H25 outlook, largely due to a slowerthan-anticipated performance in the automotive sector. Nonetheless, we remain optimistic onPentamaster's prospects, as it stands to benefit from the expansion of power semiconductor devices driven by AI advancements, and from medical manufacturing automation due to stringent industry standards.

• Continued weakness in automotive segment, with the group’s orderbook growing only 5% QoQ to MYR420m. Management, in its briefing, said it now projects that the sector will contribute 25-28% to overall FY24 revenue, with expected softness persisting into 1H25. Against this backdrop, Pentamaster is shifting its focus towards high-growth segments (eg advanced packaging within semiconductor manufacturing), viewing 2H24 as a transitional period.

• Medical devices to remain primary revenue driver at 45-48% of FY24 revenue. The group is working to expand its customer base in anticipation of a slowdown from its main client. New customers currently represent a relatively modest 10-15% portion of the medical devices topline. In FY25, Pentamaster expects the segment to contribute 40-45% of revenue, with its key customer as the largest contributor. It is also seeing momentum from new customers and expects expansion plans from these clients.

• Other segments. The semiconductor space showed signs of recovery with revenue growth in 3Q24, and is expected to represent c.10% of total FY24 revenue. Similarly, the electro-optical industry is projected to sustain its growth momentum, contributing 10-12% to total revenue. FY25 growth is expected to be fuelled by demand for optical sensors and its flagship test solutions for proximity sensors. Remaining revenue will come from the consumer and industrial products segment, which should stay subdued in FY24. The group has an anchor customer strategy within its factory automation solutions (FAS) division, focusing on securing major clients for each business unit to ensure a steady revenue base. The consumer and industrial products segment could see growth in FY25 if it can secure new customers and recurring orders.

• Campus 3.0 is nearing completion, with the FAS segment set to gradually move into the facility by the year-end, followed by the MediQ subsidiary early next year. Capex allocated for the campus is c.MYR300m, with another c.MYR50m to be spent over FY24-25. It has also set aside MYR30m for a warehouse and another MYR6m for furniture, fittings, and IT infrastructure.

• We cut earnings by 8%, 14%, and 12% for FY24-FY26 on lower anticipated automotive sector contribution.Our newMYR5.10 TP is based on unchanged 33x FY25F P/E (+0.5SD of the 5-year mean) and includes a 2% ESG premium. Risks: Slow orderbook replenishment, skilled labour shortages.

Source: RHB Securities Research - 11 Nov 2024