PANTECH GROUP HOLDINGS BHD

By AllianceDBS Research Buy (maintained) Target price: RM0.75

ALLIANCEDBS Research has reiterated its “buy” call on steel pipe manufacturing company Pantech Group Holdings Bhd, primarily attributed to the company’s strong earnings growth momentum.

The research house said that more orders from downstream projects would sustain Pantech’s earnings growth in the current financial year 2018 (FY18).

“Following the release of strong first quarter results, we believe Pantech’s earnings rebound momentum will persist going into the second quarter of FY18, underpinned by more orders from the Rapid project in Johor.

“We are more bullish on our earnings estimates as we believe Pantech’s earnings recovery will be supported by positive order flows from Rapid and the stabilisation of global steel prices. We also believe consensus will revise earnings upwards in the second quarter, as the net profit registered in the first quarter of FY18 has met 34% of consensus’ full-year estimate,” AllianceDBS Research said in a note.

According to the research house, Pantech’s move to set up a warehouse in Pengerang and a galvanising plant in Tanjung Langsat is anticipated to put the company in a better position to benefit from more orders from Rapid.

Margins of Pantech’s galvanising plant are also expected to improve further in the second half of FY18 as the plant achieves breakeven point. Currently, the plant has an annual capacity of 48,000 metric ton.

“Completed at end-FY17, the galvanising plant is still loss making as at end of first quarter of FY18 due to start-up costs, with utilisation rate at 30%.

“However, we expect it to break even by end-FY18 as utilisation rate approaches 50% and see its margins expand,: said AllianceDBS Research.