KUALA LUMPUR (Nov 9): CGS-CIMB reiterated its call "buy" for Pentamaster Corp Bhd with a higher target price (TP) of RM5.90, from RM4.80 previously, as it expects the group’s earnings to continue to recover for the fourth quarter ending Dec 31, 2020 (4QFY20), driven by robust demand for its Intelligent Automated Robotic Manufacturing System (i-ARMS) and power management integrated circuits (PMICs) going into electric vehicles (EVs).

The research house’s analyst Mohd Shanaz Noor Azam said in a note that Pentamaster’s results for the cumulative first nine months ended Sept 30, 2020 (9MFY20) were in line with his forecasts at 67% of his full-year estimate.

He said the group’s core earnings per share (EPS) for the third quarter ended Sept 30, 2020 (3QFY20) grew by 23% quarter-on-quarter (q-o-q) on the back of higher factory automation solution (FAS) sales in spite of ongoing delays in automated test equipment (ATE) shipment delivery due to travel restrictions.

He expects Pentamaster’s sales and net profit to continue to recover for 4QFY20 and thereafter, driven by backlog order fulfilment and robust demand for PMICs going into EVs, such as insulated-gate bipolar transistors (IGBTs), alternating current/direct current (AC/DC) power inverters and silicon carbide (SiC)-based solutions.

He noted that the group is also broadening its exposure to gallium nitrite (GaN)-based PMICs for mobile devices.

“Moreover, we see higher margin delivery in FY21 due to changes in the sales mix between prototype and repeat orders,” he said.

He said the group’s gross profit margin for 9MFY20 fell to 34%, from 36% a year ago, due to a higher mix of prototype delivery for proof of concept, which traditionally offers lower margins compared to repeat orders, but the group expects these prototypes to be converted into repeat and high volume orders within the next six months.

“We still peg our valuation at +0.5SD (standard deviation) from the three-year Malaysian semiconductor equipment sector mean but update our target multiple from 26 times to 32 times to reflect the recent rerating of the sector, which trades at 36 times FY21 forecast price-to-earnings (PE), about 1SD above its three-year historical mean,” he said.

At 10.16am, Pentamaster had fallen three sen or 0.58% to RM5.17, valuing the group at RM3.68 billion.