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
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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]