Review

• Pantech Group Holdings Bhd (PANTECH) registered a poorer performance in 3QFY24 both QoQ and YoY. 9MFY24 core net profit of RM69.8mn (-15.2% YoY) came in within our but below consensus’ expectations at 73% of ours and 68% of consensus’ full-year forecasts.

• The group declared a third interim dividend of 1.5 sen/share (3QFY23: 1.5 sen/share), bringing the YTD DPS to 4.5 sen (9MFY23: 4.5 sen).

• YoY: 3QFY24 revenue plunged 26.2% YoY dragged by both softer sales demand from local oil and gas projects for the Trading Division (-32.9% YoY) as well as lower ASP and lower demand for stainless steel products for the Manufacturing division (-20.6% YoY). We understand that the tenders for major oil and gas (O&G) projects such as the Pengerang Integrated Petroleum Complex (PIPC) have been delayed. On the back of revenue decline, quarterly PBT dropped 41.8% YoY. Similarly, 9MFY24 revenue and PBT slipped 14.8% YoY and 19.2% YoY respectively due to the same reasons mentioned above.

• QoQ: 3QFY24 revenue dropped 11.6% QoQ mainly attributed to lower demand in both divisions. Notably, poorer product mix in the Trading division led to 3.3%-pts drop in the operating margin QoQ to 8.3% in 3QFY24. Consequently, PBT dipped 27.0% QoQ.

Impact

• No changes to our earnings forecasts.

Outlook

• We expect 4QFY24 results to be flattish or only improve slightly QoQ due to less major O&G projects locally. Nonetheless, the group should register better performance in FY25 as the tenders for major projects such as PIPC are expected to commence in mid-2024.

• As one of the largest one-stop providers for pipes, valves and fittings (PVF) in Malaysia, we are sanguine on the long-term outlook of PANTECH as Malaysia aspires to move up the value chain from basic to specialty chemical under the National Industrial Master Plan 2030.

• PANTECH presents as an attractive dividend play, potentially offering 6.7% dividend yield for FY24-FY26 supported by free cash flow yield of above 15%.

Valuation

• Reiterate Buy with an unchanged TP of RM1.18/share based on 10x CY24 EPS.

Source: TA Research - 19 Jan 2024