Pentamaster aims 30% revenue in 3 years

The group will register revenue of RM50m, RM100m and RM180m for its CY20, CY21 and CY22 respectively, from the medical segment


PENTAMASTER Corp Bhd’s venture into the medical industry will benefit the group and is expected to contribute up to 30% into its revenue by 2023.

Inter-Pacific Research Sdn Bhd said in a note recently that the group will register revenue of RM50 million, RM100 million and RM180 million for its calendar year 2020 (CY20), CY21 and CY22 respectively, from the medical segment.

The group plans to sell safety pen needle and safety intravenous (IV) catheter to the US and European markets where it targets the medical segment to contribute 10% in revenue in CY21 and up to 30% in CY23 with a gross profit margin range of between 30% and 40%.

“We reckon the growing global prevalence of diabetes is the key growth driver for the pens and needles market, and the International Diabetes Federation expects the number to rise to between 10.2% and 10.9% of the global population in 2030/2050, from 9.3% in 2019, owing to the increase prevalence of elderly population, obesity, sedentary lifestyle and bad diet.

“Insulin pen accounts for 42% of the medium of instrument and it is the largest share of the global insulin device,” said the research firm.

It said the group’s quest to expand its revenue and diversification came with the acquisition of TP Concept Sdn Bhd.

In September last year, Pentamaster acquired the die-cast and medical machine manufacturer for RM21 million.

“We envisage the medical segment to generate recurring income over the middle and long term, and a buffer from the semiconductor industry’s cyclical cycle.”

The firm initiated coverage on Pentamaster with a ‘Buy’ recommendation and a target price of RM5.65 by ascribing a target price-to-earnings ratio of 25 times to its forecast CY21 earnings per share of 22.6 sen. The stock rose 19 sen yesterday to RM5.14.

Besides Pentamaster’s venture into the medical device market, growing demand for high power electronics in the electric-vehicle (EV) segment, rising adoption of 3D laser sensing technology smartphones and margin expansion across the company’s segment will also contribute to the group’s growth.

The rising semiconductor content in telecommunication and consumer electronics, mainly 3D sensing modules, is expected to benefit Pentamaster’s automated test equipment (ATE) segment in the long run.

The segment accounted 86% of the group’s FY19 revenue.

“Smartphone brands are introducing 3D depth sensing technology to upgrade users’ experience in gaming, shopping and photography.

“Industry research, Yole Development SA forecast a global 3D imaging and sensing market to expand from US$5 billion (RM20.75 billion) in 2015 to US$15 billion in 2025,” Inter-Pacific noted.

It added that Pentamaster will also benefit from the increasing prevalence of EV as insulated-gate bipolar transistor (IGBT) silicon carbide (SiC) is widely used in the EV industry, solar energy system, data centres and 5G telecom infrastructures.

“Pentamaster provides ATE solutions for SiC-based applications, IGBT, AC/DC power inverter and multilayer ceramic capacitors.

“The increasing prevalence of automobile EV/hybrid EV raises the demand for power conversion circuits such as IGBT and SiC’s passive components.

“In the medium term, we also reckon that the demand for ATE used in higher-power electronics will gain traction in China due to its early adoption in EV,” the research outfit said.

It, however, projected Pentamaster’s earnings for CY20 to be flat due to delay in flagship smartphones stemming from Covid-19 interruption in the installation process.

It also estimated Pentamaster’s earnings in CY21 and CY22 to grow by 29% and 22% respectively.

“We placed a conservative revenue growth estimate of -8%/-7%/ -5% in CY20/CY21/CY22 for the ATE segment and robust growth from the factory automation solution segment of 76%/44%/49% respectively.

“The group’s orderbook stood at RM200 million to RM230 million at the end of CY20, ended June 2020,” it said.

Pentamaster’s margin expansion beyond CY20 will be driven by strong demand for ATE to cater to wider adoption of smart sensors, broadening exposure to 3D sensor module test equipment and solutions and better mix in the medical segment.