PANTECH GROUP HOLDINGS
By Kenanga Research Outperform Target price: RM0.47
THE first half of the financial year 2019 saw Pantech’s net profit of RM25.0 mil coming in at 58% and 56% of Kenanga and consensus’ full year’s earnings forecasts, respectively.
“Nonetheless, we deem this to be broadly in-line of expectations, in anticipation of a weaker second half (2H19) due to the suspension of shipments of carbon steel butt-weld fittings to the US following a preliminary affirmative anti-circumvention determination issued by the US Department of Commerce (DOC) in July 2018,” analysts said.
The first half of financial year 2019 (1H19) net profit dipped 3% on the back of weaker manufacturing segment (-5%), masking, improved trading segment (12%) due to increased delivery to local oil and gas projects.
As for the individual quarter of 2019 (2Q19), net profit of RM10.9 mil was lower by 8% year-on-year (y-o-y) due mainly to the poorer manufacturing segment (-26%) offset by the improved trading business (21%).
Similarly for the quarter-on-quarter (q-oq) basis, results were poorer by 23%, dragged loss of manufacturing profits by 42% coupled with a slight dip in trading segment by 2%.
Analysts say that the quarter’s poorer manufacturing segment was a direct result of the aforementioned suspension of shipments of carbon steel butt-welds fittings to the US.
“As we understand, the DOC is scheduled to arrive in Malaysia for inspection purposes in December 2018, and is expected to arrive to a final decision on the matter by February 2019.
“We opine that should Pantech land a favourable decision, we may potentially see an approximately around 5-10% earnings upgrade for the estimated financial year 2020 (FY20E),” they said.
“We view current levels to have more than priced-in foreseeable negatives following recent share price weakness.”
At this level, the stock also offers decent dividend yields of 3-5%.
The risks to call include weaker-than-expected performance of the trading division, and lower-than-expected selling prices of pipe fittings & valves.