Pantech Group Holdings- Riding High on Great Demand

Pantech Group Holdings Berhad (Pantech)’s 1HFY13 results were above consensus but in line with our estimates. The good performance was mainly due to strong demand for its products from the O&G sector and a strong contribution from Nautic Steel. The Board has declared an interim single-tier dividend of 1.2 sen, in line with our expectation. We remain upbeat on Pantech’s future performance due to its promising earnings growth potential as well as the positive outlook on the O&G sector. Maintain BUY with FV revised upwards to RM0.81.

Another strong quarter. As expected, Pantech successfully recorded another strong quarter with a net profit of RM14.3m for 2QFY13 (+14.8% q-o-q, +98.6% y-o-y) due to significant improvements from both its trading and manufacturing divisions. In terms of segmental profit before tax, its trading division improved by 99% y-o-y thanks due to higher sales demand from the oil and gas (O&G) sector as well as better cost controls, while its manufacturing division improved by 173% y-o-y, which was mainly contributed by Nautic Steel and better sales of its niche market products such as the improved mix of its carbon steels.

Dividends in line. The Board declared an interim single-tier dividend of 1.2 sen this quarter, bringing 1HFY13’s dividend payout to 2.2 sen, in line with our expectation that Pantech will maintain its high dividend payout ratio of around 40%.

Riding on the O&G sector. As stated in our previous report titled “A View From The O&G Perspective”, the demand for Pantech’s products may grow at a healthy pace given the positive outlook in the O&G sector, both domestically and overseas. In addition, we reckon that the company’s expansion plans involve ramping up its manufacturing division’s capacity, especially that of Nautic Steel in the UK, to meet the growing demand for its products and thus, we can expect more commendable growth in the upcoming years.

Maintain BUY, FV rolled over to FY14. Against the backdrop of a positive outlook in the O&G sector and Pantech’s expansion, we remain upbeat on the company’s future performance. Therefore, we maintain our BUY recommendation with the FV revised upwards to RM0.81 as we roll over our valuation to peg at 6x FY14f PE. At its current price of RM0.68, Pantech is offering investors an upside of 20% in capital gains and we see this as an opportunity to further accumulate the stock.

Source: OSK