According to Mercury Securities’ update report on Pantech Group Holdings, the group’s results were above expectations, achieving 85.9% and 95.7% of its full year revenue and profit forecasts for FY23 respectively. Hence, the research house has revised its profit forecast upward by 13.4% for financial year 2023 (FY23F) due to higher local oil and gas demand and robust export demand for carbon and stainless steels.
Mercury has reiterated a BUY recommendation on Pantech with a target price (TP) of RM0.930 based on its forecast financial year 2024 EPS (FY24F EPS) of 9.8 sen and price earnings ratio (PE) of 9.5x in line with the 10-years average. It has put up a BUY recommendation due to its attractive dividend yield, and cheap valuations. The target price represents a potential return of 15.5% over the current price.
Key catalyst was from the manufacturing and trading division, contributing 44.5% and 55.5% to total revenue for the current quarter. Deliveries to local oil and gas sector were higher due to more projects secured.
Results were stronger due to better product mix, and increased export demand supported by the reopening of the economy and waning impact from the Covid-19 pandemic. It is noticed that nickel, which is a major raw material utilised by Pantech had decreased in price resulting in lower ASP for their products.
Oil & Gas (O&G) sector a growth driver. Petronas had allocated 20% of planned capex over the next 5 years from FY22. This suggests a positive industry outlook, potentially adding tally to the Group’s current order book of RM300 million as of December 2022, expected to be fully recognised within 9 months to 1.5 years. With more than 70% of the Group’s earnings derived
from this sector, Pantech is in the right position to benefit from the capex cycle. Approximately 40% of the revenue from this sector comes from the maintenance of pipes, valves, and fittings (PVF), suggesting a strong recurring income.
Expect higher contributions from the palm oil industry. Pantech supply PVFs to the palm oil industry. The research house holds the opinion that more contracts could be secured from the palm oil industry on the back of strong palm oil prices. Hence, it expects contributions from this segment to the company’s revenue to increase to 20% for FY23, up 4% from FY21. With more than 30,000 stock keeping units (SKUs), the company is better positioned to meet rising customer demands.
Dividend. A third interim single tier dividend of 1.5 sen per share was declared, ex-date will be on February 27, 2023.
Key risks include fluctuation of steel and nickel prices, labour shortage, and slower-than-expected contract flow.
