MORNING CALL: 8/11/23

The Edge TV

CGS-CIMB Research says Pentamaster Corp could witness near-term demand moderation in its automotive segment, though this could be cushioned by the growth in its medical business

Transcript

00:00 Pentamaster is our stock in focus this Wednesday morning.

00:05 CGSC and MB Research says it's still keeping its hold recommendation on the counter,

00:10 though it lowered its target price from RM5.50 to RM5.24 a piece.

00:16 The stock ended trading yesterday at RM4.87.

00:19 So Pentamaster just released its latest fiscal results.

00:23 Third quarter core net profit rose by 5% year on year and 47% quarter on quarter,

00:29 driven by higher revenue from its medical segment,

00:32 though that was partially mitigated by higher depreciation expense.

00:37 Nine months core net profit down 13% to RM60.1m,

00:41 making up just 63% of CGSC and MB's full year estimates and 58% of consensus forecast.

00:48 Despite the automotive revenue growth of 47% year on year during the period,

00:54 the research house says the 30% quarter on quarter decline in the third quarter could be a telling sign

01:00 of moderating demand for electric vehicles,

01:02 given rising interest rates and diminishing subsidy tailwinds.

01:07 That said, it believes this could be partially cushioned by Pentamaster's medical segment,

01:12 which saw a fourfold sequential revenue growth in the third quarter to RM64m.

01:17 But while the growth is encouraging,

01:19 new customer acquisitions are important to build the company's order book and reduce revenue lumpiness.

01:25 CGSC and MB cut its FY23 to 25 EPS by 4.4% to 9.6% to reflect higher depreciation expense,

01:34 and lower FY24 to 25 automated testing equipment or ATE revenue due to the potential EV slowdown.

01:42 So what's the consensus?

01:44 According to Bloomberg data, there are six buy and three hold recommendations on the stock,

01:49 with target prices averaging out to RM5.89.

01:53 Pentamaster last settled at RM4.87, so that's a potential return of almost 21%.

02:00 [Music]

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