This article first appeared in The Edge Malaysia Weekly on September 8, 2025 - September 14, 2025
PENTAMASTER Corp Bhd (KL:PENTA) is positioning itself for the next technological cycle to sustain growth as an electrical and electronics (E&E) player amid an environment brimming with uncertainties, challenges and intensified competition.
Group executive chairman Datuk C B Chuah tells The Edge that the diversification is necessary as the semiconductor test equipment business has become mature and competitive.
“We need to position ourselves for the next technology cycle growth. This is one of the reasons why we are venturing into the submicron silicon photonics interconnects segment to cater for servers that require high-speed connectivity,” he says.
Malaysia, in particular Penang, is a well-known hub for semiconductor equipment manufacturing activities. The country has a 13% market share in the global outsourced semiconductor assembly and test (Osat) services segment and is the sixth-largest semiconductor exporter.
In the last two decades, the vibrant E&E industry has seen the emergence of more than 30 companies that eventually listed on Bursa Malaysia. One of the beneficiaries of the Osat sector is Pentamaster, a company that provides semiconductor test equipment and automation systems to the E&E industry.
In a move to advance the company’s capabilities in the Osat space, Pentamaster announced last Thursday that together with its partners, it would invest in a joint venture to develop submicron silicon photonics interconnects, a component that enables faster artificial intelligence (AI) chip communication.
Its subsidiary, Pentamaster Innoteq Sdn Bhd (PISB), will acquire a 14.3% stake in a joint-venture company called Ahead Optoelectronics (M) Sdn Bhd for US$3 million (RM12.7 million). The other partners are Ahead Optoelectronics Inc (Taiwan), which will hold 71.42% equity interest, and JC Capital Ltd (Cayman) with 14.3%.
Chuah says under the joint venture, Pentamaster will produce a new range of active alignment semiconductor equipment to manufacture submicron silicon photonics interconnects at its plant in Batu Kawan.
Silicon photonics has been explored as a solution for optical interconnects, replacing traditional copper-based interconnects in data centres and high-performance computing systems. The silicon photonics market is particularly relevant to produce the next generation of AI servers that requires high-speed connectivity.
“The Taiwan-based Ahead Optoelectronics will produce and package diffractive optical element (DOE) lenses to enhance the efficiency of data transmission. The DOE lenses and the interconnects form a module that will be used in AI chips to accelerate the speed of data transmission,” Chuah adds.
He says the RM12.7 million invested is an initial amount to get the prototyping work started. The funding is derived from Pentamaster’s internal working capital. “We will inject more capital when the firm is ready to commence mass production in 2027.”
According to Chuah, the group had, over the past three years, invested over RM100 million in the design and development of new semiconductor equipment. “A substantial amount went to developing the active alignment semiconductor equipment.”
The silicon photonics market could see a boom, as AI chip manufacturers aim to achieve connectivity speeds of up to one terabit per second, he adds. “Such transmission speed allows you to download a high-resolution movie of one terabyte or 1,000 gigabytes in a second.”
Semiconductor analysts are forecasting that the silicon photonics interconnect market will experience a compound annual growth rate (CAGR) of more than 20% from 2025 to 2030.
“The silicon photonics market, valued at US$2.65 billion in 2025, will increase to US$9.65 billion in 2030, growing at a CAGR of 29.5%,” Chuah continues.
“We are now developing silicon photonics interconnect prototypes for potential customers, which include internationally known AI chip manufacturers based in the US, Europe, Japan and Taiwan.
“We are confident that these projects will translate into orders eventually,” he says.
Pentamaster’s partner in the silicon photonics interconnect venture, Ahead Optoelectronics, possesses opto-photonics technology that synergises with its experience as a semiconductor test equipment manufacturer, Chuah explains.
Taiwan-based JCC, which is the third partner in the joint venture, is a fund management and investment outfit. Currently, JCC manages three venture-capital funds targeting semiconductor and AI technologies.
Chuah adds that while data centres and telecommunications firms remain the primary end-users, the consumer electronics and automotive industries are also adopting the technology for applications in self-driving cars and point-of-care testing.
“Silicon photonics is revolutionising data storage systems and interconnection networks by offering a superior alternative to copper cables.
“Future advancements in silicon nitride and other photonics components, such as optical multiplexers, should propel further growth,” he points out.
In the first half of 2025, Pentamaster’s performance weakened due to headwinds.
For the six months ended June 30, 2025 (1HFY2025), the group posted after-tax profit of RM24.76 million on the back of turnover of RM276.4 million, compared with RM39.2 million and RM342 million respectively in the corresponding period last year.
As at end-June 2025, Pentamaster had almost no borrowings.
The group is maintaining a cautious stance for the remainder of the year due to the macroeconomic uncertainties in the US and ongoing trade tensions.
Operating conditions in the first half of the year proved difficult due to margin pressure arising from elevated input costs and intensifying price competition.
Chuah says extended customer decision-making cycles, a direct result of supply chain disruptions, and geopolitical spillover effects contributed to delayed project rollouts and reduced operational efficiency.
The uncertain operating environment is reflected in Pentamaster’s share price, which is trading at a historical and forward price-earnings ratio (PER) of 49 times and 35 times respectively. All analysts covering Pentamaster have a “buy” call on its shares, arriving at a consensus target price of RM3.89 per share.
A year ago, some companies in the tech sector were trading at more than 60 times PER.
Chuah anticipates a stronger second-half performance, bolstered by improving order book visibility, stemming particularly from the automated test equipment (ATE) segment.
“In the ATE segment, customers are investing in next-generation test handling and burn-in systems, especially for logic and power semiconductors,” he says.
The factory automation system (FAS) segment continues to expand, enlarging its customer base and diversifying its industry footprint beyond traditional sectors.
“The FAS division aims to penetrate emerging fields such as renewable energy, data centres and healthcare automation,” Chuah adds.
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