We visited Pantech last Friday after its 1HFY13 results release and remained positive on the company’s future prospects. We have identified Nautic Steel and stainless steel divisions as two major growth nodes for Pantech in the upcomingyears. It has achieved 50% of our FY13 full-year forecast. Confident that the company may be able to meet our forecast, we keep our BUY recommendation and RM0.81 FV, pegged at a 6x FY2/14f PE.
Outlook remains positive. Last Friday, we visited Pantech and met up with the Executive Director Mr Adrian Tan for more insights regarding the company’s future growth and prospects. Pantech’s outlook remains positive as we have identified two major growth nodes namely: (i) the Nautic Steel in UK, and (ii) the stainless steel manufacturing division in Batu Pahat, Johor.
Growth node No.1: The Nautic Steel. Since the acquisition of Nautic Steel back in March 2012, Pantech has been focusing on manufacturing one of its exotic products only – the copper nickel. This was mainly due to the bottleneck problem in Nautic Steel
when Pantech first took over. Over the last two quarters, Mr Tan and his team in the UK had been working on restructuring the company and improving its efficiency, in the hope that Nautic Steel can produce other exotic products namely Duplex and Super Duplex, which had been approved by the oil majors. We gathered that Pantech has bought in machines to turn its elbow manufacturing line into a fully automated one. This should improve Nautic’s efficiency and boost a wider range of products. Moving forward, the company plans to install more machines to expand its product range.
Growth node No. 2: The Stainless Steel. We highlighted in our previous reports that Pantech expects a breakeven of its stainless steel division by end-FY13. Despite incurring losses in the division (getting narrower), the company is able to report strong results for the last two quarters. Hence, we believe that once Pantech has overcome the steep learning curve in the stainless steel manufacturing process, the division would be another strong growth driver for the group.
Nautic’s brand name – priceless. Pantech is able to market its products (other than Nautic’s production) to the oil majors by leveraging on Nautic’s brand name in the international platform. We think this will give the company vast business opportunities.
Outlook remains positive. Last Friday, we visited Pantech and met up with the Executive Director Mr Adrian Tan for more insights regarding the company’s future growth and prospects. Pantech’s outlook remains positive as we have identified two major growth nodes namely: (i) the Nautic Steel in UK, and (ii) the stainless steel manufacturing division in Batu Pahat, Johor.
Growth node No.1: The Nautic Steel. Since the acquisition of Nautic Steel back in March 2012, Pantech has been focusing on manufacturing one of its exotic products only – the copper nickel. This was mainly due to the bottleneck problem in Nautic Steel
when Pantech first took over. Over the last two quarters, Mr Tan and his team in the UK had been working on restructuring the company and improving its efficiency, in the hope that Nautic Steel can produce other exotic products namely Duplex and Super Duplex, which had been approved by the oil majors. We gathered that Pantech has bought in machines to turn its elbow manufacturing line into a fully automated one. This should improve Nautic’s efficiency and boost a wider range of products. Moving forward, the company plans to install more machines to expand its product range.
Growth node No. 2: The Stainless Steel. We highlighted in our previous reports that Pantech expects a breakeven of its stainless steel division by end-FY13. Despite incurring losses in the division (getting narrower), the company is able to report strong results for the last two quarters. Hence, we believe that once Pantech has overcome the steep learning curve in the stainless steel manufacturing process, the division would be another strong growth driver for the group.
Nautic’s brand name – priceless. Pantech is able to market its products (other than Nautic’s production) to the oil majors by leveraging on Nautic’s brand name in the international platform. We think this will give the company vast business opportunities.
Continuous expansion locally and overseas. In the last analysts’ briefing, we gathered that Pantech has installed a new machine for its carbon steel fittings with a capacity of 1,500 tonnes per annum, bringing its total carbon steel production capacity to 18,000 tonnes per annum. Its carbon steel division is currently running at full capacity with two shifts per day. Meanwhile, the company has bought a piece of industrial land in the UK for Nautic Steel expansion to meet rising demand for its products.
Things going as planned. All in, we think that Pantech should be able to report commendable results in the coming quarters. Confident in its sustainable growth, we are maintaining our FY13 and FY14 earnings forecast. Pantech’s 1HFY13 results of RM26.8m is in line with our FY13 full-year forecast of RM53.7m. We estimated a 14.2% FY14 growth as we remain conservative on its stainless steel division, which may need some time for a sales pickup, while normalising the growth impact contributed by the Nautic Steel in FY13.
Dividend may be able to meet 40% payout. To date, Pantech has declared a total of 2.2 sen dividends for FY13. We believe that the group will maintain its payout ratio of about 40% to reward its shareholders amid its continuous expansion plans.
Maintain BUY, FV remained at RM0.81. We are keeping our BUY recommendation for Pantech and its FV at RM0.81 which was derived from a 6x FY2/14f PE, on the back of its sustainable growth plans tabled by the management as well as the positive outlook for the O&G sector.
Things going as planned. All in, we think that Pantech should be able to report commendable results in the coming quarters. Confident in its sustainable growth, we are maintaining our FY13 and FY14 earnings forecast. Pantech’s 1HFY13 results of RM26.8m is in line with our FY13 full-year forecast of RM53.7m. We estimated a 14.2% FY14 growth as we remain conservative on its stainless steel division, which may need some time for a sales pickup, while normalising the growth impact contributed by the Nautic Steel in FY13.
Dividend may be able to meet 40% payout. To date, Pantech has declared a total of 2.2 sen dividends for FY13. We believe that the group will maintain its payout ratio of about 40% to reward its shareholders amid its continuous expansion plans.
Maintain BUY, FV remained at RM0.81. We are keeping our BUY recommendation for Pantech and its FV at RM0.81 which was derived from a 6x FY2/14f PE, on the back of its sustainable growth plans tabled by the management as well as the positive outlook for the O&G sector.
Source: OSK
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