Pentamaster to benefit from diversification into new segments 

PETALING JAYA: Pentamaster Corp Bhd is exploring opportunities across the advancements in artificial intelligence (AI), data centre (DC), high performance computing and networking to mitigate sector-specific downturns.

In the first quarter ended March 31, 2025 (1Q25), the automated test equipment (ATE) manufacturer’s net profit had slipped by one-third to RM13.07mil.

UOB Kay Hian (UOBKH) Research said the earnings shortfall relative to analysts’ consensus expectations was largely attributable to softer-than-expected revenue contribution from the medical segment, which weighed on overall top line performance.

Pentamaster’s 1Q25 order book dwindled to RM350mil from last quarter’s quantum of RM400mil.

Analysts noted that the groups 1Q25 net cash also dwindled to RM262mil (versus RM449mil in 4Q24).

This was due to the privatisation exercise of Pentamaster International Ltd.

“Amid persistent macroeconomic uncertainties, we gather that some of the group’s customers have adopted a cautious stance, by deferring investment and procurement decisions particularly in capital expenditure-sensitive sectors.

“This cautious sentiment, compounded by recent US-imposed tariffs that have further strained global trade relations, has led to slower than-expected order replenishments,” UOBKH Research said in a report.

Consequently, it said the group is facing near-term headwinds in order conversion momentum.

This is further challenged by shifting global supply chain strategies across both its clients and the group.

Following a 28% rebound from its recent trough, the research house said the stock reflected a balanced risk-reward profile.

Hence it has downgraded the stock to a “hold” with a target price of RM2.70.

Meanwhile, CGSI International (CGSI) Research has cut its FY25-FY27 earnings per share by 14% to 17% to reflect potentially weaker orders from the automotive and medical segments due to the US tariff situation.

“We also expect medical segment revenue to decline by 20% in FY25 (versus a previously projected 10% drop), as we believe more US-based MedTech companies may increasingly seek to re-shore their manufacturing operations.

“This trend could be particularly pronounced for companies with existing facilities in the United States.

“It could potentially limit strong order wins for Pentamaster compared eith our earlier expectations,” said CGSI Research.

However, it said Pentamaster’s diversification into new growth areas, such as renewable energy and high-performance computing, may alleviate the emerging challenges pertaining to the US tariff situation.

The new segments are expected to contribute 5% of FY25 revenue, driven by the group’s ongoing efforts to expand its sales pipeline.

Following the earnings revisions, the research firm also downgraded Pentamaster from “add” to “hold” with a RM2.70 target price.