Pantech’s earnings outlook remains intact — Analysts
KUCHING: Pantech Group Holdings Bhd’s (Pantech) earnings outlook remains intact, analysts observed.
They also pointed out that with recovery seen in its earnings, the group deserves to trade at its mean average valuation.
The research arm of Kenanga Investment Bank Bhd’s ( Kenanga Research) expected the demand for pipes, valves and fittings (PVF) to be robust as the Refinery and Petrochemical Integrated Development ( Rapid) project is entering infrastructures development and buildings phase along with the gradual completion of groundwork.
“We understand that part of the orders are variation orders from sub- contractors, which usually fetch higher margins due to higher urgency,” it said.
Thus, the research arm reckoned trading earnings before interest and tax ( EBIT) margins will improve in financial year 2018 ( FY18) from 10.5 per cent a year ago. The research arm noted that year to date ( YTD), Pantech has received RM80 million to RM90 million orders from Rapid.
According to Kenanga Research, besides stronger domestic sales, the manufacturing arm is also targeting better earnings contribution in view of higher sales orders from overseas.
“Note that 31 per cent of its FY17 top-line is generated from export markets dominated by US, Indonesia and Middle East and such demand, in our view, are sustainable,” the research arm said.
It noted that this was on the back of robust activities from shale pro- ducers in US, as well as revival and continuous maintenance work from oil and gas ( O& G) downstream segment in Middle East and Indonesia.
While both Pantech’s stainless steel and carbon steel plants are currently operating at 90 per cent utilisation, versus 80 per cent and 70 per cent in FY17, the research arm expected these two plants to continue operating at optimal utilisation of at least 85 per cent in FY18 to FY19.
On another note, Kenanga Research highlighted that since the commercialisation of Pantech’s 48,000 metric tonne (mt) capacity galvanising factory in December last year, Pantech had achieved 30 per cent utilisation in the first quarter of 2018 (1Q18) and had further improved it to 45 per cent.
“Although the 51 per cent-owned plant is still loss-making, the company is confident of achieving 50 per cent utilisation, the breakeven level by 4Q18,” the research arm said.
The research arm estimated the full utilisation will contribute an additional RM8 million per annum to the bottom-line whilst complementing the group’s existing business without the need to outsource the PVF galvanising job to third parties.
Overall, Kenanga Reserach said that although both local plants are operating at full capacity, Pantech has no aggressive expansion plan in the near term.
“Having said that, the company is looking to replace and upgrade part of its machinery and this would probably enhance its production capacity,” it added.
With no changes in its estimates, Kenanga Research maintained its ‘outperform’ call on the stock.
We understand that part of the orders are variation orders from sub-contractors, which usually fetch higher margins due to higher urgency. Kenanga Research