PENTAMASTER Corporation Bhd’s results for the second quarter of its 2020 financial year came in below expectations, according to AmInvestment Bank, with the stock now overvalued following a recent price rally.
“Pentamaster’s 2QFY2020 results came in below expectations at RM17 mil, bringing 1HFY2020 core profit to RM33 mil. This is after excluding a net exceptional gain of RM2 mil mainly from unrealised forex gains offsetting losses from fair value changes of foreign currency forward contracts,” said the research house.
The dip in core profit for 1HFY2020 is mainly due to the group’s revenue falling 15% as a result of lower automated test equipment sales due to the Covid-19 pandemic. However, AmInvest noted that this was partially offset by higher demand for factory automated solutions.
Sales for automated test equipment actually slumped 32% year-on-year (yoy), impacted by travel restrictions from the pandemic, which in turn affected Pentamaster’s project delivery schedule and site installation of products, thus affecting revenue. Production capacity was also limited due to the movement control order (MCO).
Smart control solutions systems by Pentamaster also saw a wider pre-tax loss of RM0.6 mil as sales declined due to the group’s i-Hub solution not yet contributing positively, pending the finalisation of its modular system.
On the other hand, factory automated solutions saw a surge of 88% in sales yoy, due to the increasing adoption of the Fourth Industrial Revolution and artificial intelligence.
With regards to Pentamaster’s move to diversify into the medical device business, the group is in the process of obtaining approvals from the US Food and Drug Administration and Malaysia’s Medical Device Authority.
The group will utilise its Batu Kawan plant in producing dual-safety pen needles for diabetic patients to administer insulin shots, and safety intravenous catheters to administer drugs or fluids, and to draw blood.
“Production is set to commence in 1HFY21 and the medical segment is anticipated to contribute about 10% of the group’s revenue in FY21, growing to an approximated 30% contribution in 2023. Furthermore, the group has earmarked RM60 mil for the production of these devices in the next 3 years,” noted AmInvest.
Moving forward, AmInvest expects Pentamaster to see earnings recovery in 2HFY2020, as the group is anticipated to ramp up production after resuming production post-MCO at full capacity, as well as being able to resume travelling to project site installations, though this remains on a restricted basis.
The research house downgraded its recommendation for Pentamaster to underweight from a previous hold call, with a lower fair value of RM3.21 from a previous RM3.30.
“Although we continue to like Pentamaster due to its positive prospects, we deem that the stock is overvalued given the recent run-up in its share price,” said AmInvest.
At 3.15pm, Pentamaster’s shares were last done at RM4.39, up 29 sen, with 3.43 million shares traded. – Aug 17, 2020
