• Keep BUY, new MYR5.12 TP from MYR5.10, 22% upside and 0.5% FY24F yield. Pentamaster Corp plans to privatise subsidiary Pentamaster international (PIL), with Puga Holdings - a special purpose vehicle (SPV) backed by Achi Capital - acquiring the remaining 36.1% stake not already owned. This move will increase PCB's ownership in PIL to 71%, enhancing earnings potential and unlocking greater value while leveraging on Achi Capital's expertise to drive PIL's growth.
• PCB and Puga will be acquiring the remaining 866k or 36.1% of PIL's total shares that are not currently owned by the offerors. PCB will acquire a further 170.4k shares (7.1% of PIL's total shares), increasing its stake to 71% from 63.9%. The cash consideration will total HKD158.5m (c.MYR91.8m), representing HKD0.93/share and be financed by internal resources. This acquisition will not strain the group's balance sheet, in our view, given its healthy operating cash flow and net cash position of MYR466.7m as of 3Q24. The offer price represents a premium of 16.3% over the last traded price of HKD0.80 or 39.7% over the average price for the past six months. Note: PIL will also declare a special dividend of HKD0.07, bringing the total consideration to HKD1/share. The long-stop date for the transaction is 19 Jun 2025, and the proposal requires >75% approval by existing PIL shareholders at an upcoming EGM, amongst other conditions.
• Rationale. PIL was listed on the HKSE in 2018 to strengthen its presence in the Chinese market and support PCB's customer development. However, its shares have consistently traded at significantly lower valuations vis-a-vis PCB (5-year mean P/E of 7.6x vs 29.6x), rendering the costs and regulatory requirements of maintaining the listing unjustifiable. We believe the planned delisting is strategically sound, as the remaining 29% stake will be acquired by Puga, an SPV backed by Achi Capital - a private equity firm specialising in semiconductor and technology investments in China. Achi Capital's expertise and network are likely to drive PIL's growth and enhance its market position. Additionally, the proposal allows PIL to streamline operations and reduce compliance costs. As PIL contributes the entirety of PCB's PAT, the 36.1% stake in PIL not owned by the group is currently recorded as minority interest in PCB's financials. Acquiring an additional 7.1% stake will result in a 12% increase in PCB's EPS, making the acquisition earnings-accretive.
• Keep BUY. While we have factored in the earnings boost from the additional stake in PIL, our FY24F-26F earnings are adjusted by -2.5%, 0.4%, and 3.9%, slightly offset by lower topline assumptions due to the delayed recovery in the automotive sector. Our TP is slightly lifted to MYR5.12 based on an unchanged 33x FY25F P/E (+0.5SD of its 5-year mean) and inclusive of a 2% premium based on its 3.1 ESG score. Downside risks include slow replenishment of its orderbook and skilled labour shortages.

Source: RHB Securities Research - 20 Dec 2024