Remisier note

$PENTA / 7160 (PENTAMASTER CORPORATION BERHAD)

*Pentamaster Corp (BUY/RM3.30/Target: RM3.90)*

• *Within expectations.* Pentamaster Corp reported a weaker 4Q24 core net profit of RM15.1m (-38% qoq, -35% yoy), bringing 2024 core net profit to RM79.5m (-10%) which accounts for 96% of our/consensus full-year estimates respectively. Note that 2024 core earnings have been adjusted for the unrealised forex losses (RM14.6m) and other one-off impairment related to inventory and expected credit loss allowance on receivables.

• *2024 revenue dropped 10% yoy,* as higher growth from its factory automation solutions (+61% yoy) was offset by slower sales in its automated test equipment segment (-48% yoy). Segment-wise, while sales in the medical segment were particularly strong (+2.1x) on strong take-up for its intelligent automated robotic manufacturing system (i-ARMS), the automobile segment, which was the largest contributor in 2023, saw its sales halved. Meanwhile, core net profit dropped by a similar quantum of 10%, cushioned by a better product mix from the medical segment.

• *Orderbook remained muted at RM400m; medical as the main contributor.* The group’s 4Q24 orderbook stood at RM400m (on a rolling basis). There was a slight drop of 5% compared with end-Sep 24; we gather that any substantial improvement could be seen only in 2H25 with the absence of strong visibility in the automobile segment.

• This is attributed to a shift in consumer demand amid market fluctuations and bipolarisation in the EV industry. In terms of order mix, the higher-margin medical-related orders from its factory automation solutions commanded the lion’s share, followed by automobile.

• *Unlocking strategic synergies and valuation benefits through the privatisation of its Hong Kong unit.* Pentamaster together with Puga Holdings (Puga) as joint offerors, has proposed the privatisation of its 63.90%-owned subsidiary, Pentamaster International (PIL) which is currently listed on the Hong Kong Stock Exchange (HKSE). Under the joint offerors’ agreement, PCB will increase its stake in PIL from 63.90% to 71.00% through the acquisition of an additional 170.4m shares (or 7.1%), while Puga will acquire the remaining 29.00% (696.1m shares).

• *Upon privatisation,* PIL will be delisted from the HKSE. We view the privatisation initiative as net positive, as it:

a) addresses the valuation disparity between PIL and PCB, which also provides earnings accretion to PCB and a premium monetisation opportunity to PIL shareholders;
b) reduces compliance costs and regulatory burdens associated with the separate listing of PIL; and
c) unlocks strategic synergies through Puga’s shareholders, leveraging their deep expertise and extensive networks in the semiconductor and technology sectors,

which positions PCB to expand its automated test equipment and factory automation solution segments.

• *After model updates, we cut our 2025 earnings by 12%* to account for weaker automobile and semiconductor sales.

• *Upgrade to BUY with a lower target price of RM3.90 (from RM4.40).* This is based on a lower 30.0x 2025F PE (at -1SD below the industry’s five-year forward PE). While 1H25 could continue to see a sluggish demand recovery in the automobile and semiconductor segments, value has emerged on undemanding valuations (implied forward PE of 26x at -1.5SD below mean) with a firmer sign of recovery towards 2H25.

Thanks.