Pantech Group Holdings (Pantech)’s 1QFY13 results were strong and well within expectations. Net profit of RM12.5m was stronger by 16.7% q-o-q and 99.5% y-o-y. Subsidiary Nautic Group is contributing positively to the group’s bottom line while the stainless steel manufacturing division may break even this year. The company declared a 1.0 sen special interim dividend, indicating a generous dividend policy. We continue to like the company due to its solid business model, steady growth and payout generosity. As such, we reiterate our BUY recommendation for Pantech with FV remaining unchanged at RM0.72 which was derived from 6x FY13 PE.
Profit jumped. As mentioned in last Friday’s report titled A Solid Start Seen, Pantech’s 1QFY13 results showed healthy growth and was largely in-line with our and consensus expectation, with net profit almost doubling y-o-y. Such robust results were mainly attributed to the solid foundation in its carbon steel division, gradual improvement in the stainless steel division and the contribution from newly-acquired UK-based subsidiary Nautic Steels Group.
Business arms performed well. Its trading division recorded both higher revenue of RM90.1m (1QFY12: RM70.1m) and pre-tax profit of RM15.0m (1QFY12: RM8.9m), mainly due to the improved sales demand from the oil and gas sector coupled with better-controlled operating expenses. As for its manufacturing division, revenue was recorded at RM55.1m (1QFY12: RM25.2m) and pre-tax profit at RM4.7m (1QFY12: RM1.2m). UK-based subsidiary Nautic Group registered higher margins, thereby contributing higher revenue, and both the carbon and stainless steel divisions increased manufacturing output. Pantech’s stainless steel manufacturing plant also reported improved efficiency.
UK investment the right decision. We are delighted to see earnings contributions from the Nautic Group flowing in so soon, helping to lift both the company’s top and bottom lines. We think Pantech has largely benefited from this deal, as it has not only increased the product range for Pantech, but given it an opportunity to gain access the international oil majors to sell its products as well. We believe Nautic Group’s contribution will strengthen going forward as its operational and production efficiency improves.
Stainless steel plant ups efficiency. After a long gestation period to overcome its steep learning curve, Pantech’s stainless steel manufacturing plant may hopefully break even if not begin contributing to group revenue. Moving forward, we expect more positive contributions from this formerly loss-making division.
Generous dividend payout. Pantech has declared a 1.0 sen special interim dividend for the quarter under review, in line with our view that the company may continue to pay generous dividends to the shareholders. To recap our last report’s details, Pantech’s dividend payout ratio was more than 40% in both FY12 and FY13 and we believe the company will continue its dividend policy.
Maintain BUY. We continue to like Pantech for its sound and solid business model, gradual operational improvement as well as decent dividend payouts. Furthermore, recent offshore oil and gas discoveries and ongoing oil and gas investments under the Economic Transformation Programme (ETP) announced by the Malaysian government is expected to intensify capital investment in the O&G sector. With that, we believe that Pantech’s profit visibility will remain positive and thus, reiterate our BUY recommendation with a FV of RM0.72, derived from an unchanged 6x FY13 PE.
Source: OSK
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