We came away from Pantech’s analysts briefing last week feeling upbeat on the group’s future outlook, buoyed by: i) its RM298m order book, which will keep it busy until July 2013, ii) its stainless steel division has reached breakeven, iii) Nautic Steel’s expansion will boost earnings significantly, and iv) the O&G sector’s operating environment is favourable for the group as a whole. Maintain BUY, with our RM1.00 FV based on 9x its FY14F PE.
9MFY13 results meet our forecast. Pantech reported another round of healthy earnings growth for 9MFY13, chalking up a higher revenue of RM480.9m as well as better net profit of RM42.4m, in line with our forecast. The promising performance was mainly due to improved demand in the O&G sector and export market, including positive contribution from Nautic Steel. Going forward, we are confident that Pantech would be able to meet our full-year FY13 earnings forecast, and do not discount the possibility of those numbers beating our expectations.
O&G focus the right strategy. Pantech supplies its products to a wide range of users, including palm oil mills, power plants, chemical plants and other industries whose production processes involve the transmission of fluids and gases. Currently, however, the group has set its sights mainly on the O&G sector, which we believe is the right strategy as the sector is booming and job opportunities abound.
Outlook for all divisions bright. The outlook for Pantech’s trading and manufacturing divisions continue to look promising, with the former continuing to be a major earnings contributor due to escalating demand while the latter is picking up. The group is targeting to transform into a manufacturing company through organic growth and M&As.
Maintain BUY, FV unchanged. We continue to like Pantech and are keeping our BUY recommendation, with our RM1.00 FV unchanged.
9MFY13 results meet our forecast. Pantech reported another round of healthy earnings growth for 9MFY13, chalking up a higher revenue of RM480.9m as well as better net profit of RM42.4m, in line with our forecast. The promising performance was mainly due to improved demand in the O&G sector and export market, including positive contribution from Nautic Steel. Going forward, we are confident that Pantech would be able to meet our full-year FY13 earnings forecast, and do not discount the possibility of those numbers beating our expectations.
O&G focus the right strategy. Pantech supplies its products to a wide range of users, including palm oil mills, power plants, chemical plants and other industries whose production processes involve the transmission of fluids and gases. Currently, however, the group has set its sights mainly on the O&G sector, which we believe is the right strategy as the sector is booming and job opportunities abound.
Outlook for all divisions bright. The outlook for Pantech’s trading and manufacturing divisions continue to look promising, with the former continuing to be a major earnings contributor due to escalating demand while the latter is picking up. The group is targeting to transform into a manufacturing company through organic growth and M&As.
Maintain BUY, FV unchanged. We continue to like Pantech and are keeping our BUY recommendation, with our RM1.00 FV unchanged.
KEY HIGHLIGHTS
May exceed expectations. With its 9MFY13 cumulative net profit at RM42.4m, our bullish view is that the company may continue to deliver good results. We are confident that Pantech would be able to meet our full-year FY13 earnings forecast of RM53.7m and do not discount the possibility that FY13 earnings may exceed both our and consensus expectations (consensus forecast: RM54.5m).
Expanding on the right track. Domestically, Pantech is expected to benefit from Petronas’ RM300bn investment plans given that the latter’s new offshore platform and downstream projects require the usage of its range of products. Besides, the recent O&G discoveries offshore Malaysia and the ongoing O&G investment under the government’s Economic Transformation Programme (ETP) are expected to intensify capital investment in this sector. Globally, as we have highlighted, Pantech is able to leverage on Nautic Steel’s brand to supply its products to the international oil majors and that may further improve its earnings power. Management also highlighted that it is focusing in Brazil and that Nautic Steel has secured jobs from Petrobras. We believe our bullish view on Pantech is justified given that the company has brilliantly positioned itself in the O&G sector to ride on the booming wave. (Please see our previous report “A View From The O&G Perspective” highlighting the investment of Petrobras in the O&G sector).
Manufacturing company in the making. Currently, Pantech’s trading and manufacturing divisions contribute 61% and 39% respectively to group revenue, after intersegment elimination. The group is aiming to achieve the ratio of 50:50 by 2015 through organic growth as well as M&A focused mainly in the O&G sector. The transformation of Pantech from a trading company into a manufacturing company could be a positive rerating factor for the company in future.
Stainless steel finally ready to shine. During the analysts’ briefing, management guided that the company’s stainless steel division has finally broken even in Dec 2012, after overcoming the steep learning curves and that was within our expectations. We expect positive contribution from this division moving forward, further strengthening Pantech’s earnings power.
Nautic Steel’s expansion intact. The expansion of Nautic Steel has become more concrete following the group’s acquisition of a new building in UK that could increase its capacity as well as improve its product mix. Moreover, with the introduction of new machineries and increased focus on automation, we expect better production efficiency and greater margin from Nautic Steel in the future.
FY14 to be a promising year. We remained bullish on Pantech given that i) its current total order book of RM298m will keep it busy until July 2013, ii) its stainless steel division could start contributing positively to the group, or at least stop incurring losses, iii) Nautic Steel’s expansion will contribute more significant earnings to the group, and iv) the O&G sector’s operating environment is favourable to the group as a whole.
Nautic Steel’s expansion intact. The expansion of Nautic Steel has become more concrete following the group’s acquisition of a new building in UK that could increase its capacity as well as improve its product mix. Moreover, with the introduction of new machineries and increased focus on automation, we expect better production efficiency and greater margin from Nautic Steel in the future.
FY14 to be a promising year. We remained bullish on Pantech given that i) its current total order book of RM298m will keep it busy until July 2013, ii) its stainless steel division could start contributing positively to the group, or at least stop incurring losses, iii) Nautic Steel’s expansion will contribute more significant earnings to the group, and iv) the O&G sector’s operating environment is favourable to the group as a whole.
VALUATION AND RECOMMENDATION
Maintain BUY with FV at RM1.00. We have earlier taken into account the dilution impact of its EPS arising from the conversion of its Irredeemable Convertible Unsecured Loan Stocks (ICLUS) with the assumption that all its directors have converted their outstanding ICULS. Other than that, we have also revalued Pantech, pegging it at 9x forward PE instead of 6x as we note that other domestic O&G related companies have been trading at 10x-12x PE. As we continue to remain bullish on the company’s outlook, we are maintaining our BUY recommendation, with our FV unchanged at RM1.00
Source: OSK
No comments:
Post a Comment