Review

• Pantech Group Holdings Bhd’s (PANTECH) 4QFY24 results were in line with expectations. FY24 core profit of RM97.0mn (-14.1% YoY) came in at 101% of our and 100% of consensus’ full-year forecasts.

• The group proposed a final dividend of 1.5 sen/share (4QFY23: 1.5 sen/share), bringing FY24 DPS to 6.0 sen (FY23: 6.0 sen).

• YoY: 4QFY24 PBT grew 17.2% YoY due to higher demand from local oil and gas projects and better product mix for the Trading division (+213.0% YoY). This is despite the drag from Manufacturing segment (-37.3% YoY) driven by lower demand for stainless steel products and lower ASP. Notably, the EBIT margin of Trading division improved 6.1%-pts YoY and 7.6%-pts QoQ from better product mix.

• QoQ: 4QFY24 PBT surged 33.6% QoQ on the back of higher demand and better product mix in the Trading division.

• FY24: PBT dipped 11.9% YoY dragged by softer demand and lower ASP for Manufacturing division.

Impact

• After incorporating FY24 numbers, we adjust FY25-FY26 earnings forecasts by 0.7%-1.0%. We also introduce FY27 earnings forecasts of RM108.8mn.

Outlook

• PANTECH announced yesterday that the group is considering the listing of wholly-owned subsidiaries in the Manufacturing division, Pantech Stainless & Alloy Industries Sdn Bhd and Pantech Steel Industries Sdn Bhd on the Main Market via a special purpose vehicle. No further details were given.

• Pantech Stainless mainly manufactures stainless steel pipes and fittings at its plant in Pasir Gudang, Johor, while Pantech Steel primarily produces carbon steel butt welded fittings and induction long bends in its factory in Meru, Klang. Both subsidiaries contribute c.RM50mn to the bottom-line in FY24 (approximately 47.5% of PATMI).

• We believe the listing is to unlock the value of the export-oriented manufacturing subsidiaries while still maintaining controlling stake. Assuming a conservative P/E ratio of 12x and listing of 40% stake, the listing valuation will be at RM600mn, with RM240mn proceeds that could be deployed for inorganic growth via merger and acquisition. Comparatively, PANTECH is only trading at 8.7x FY25 EPS.

• We are sanguine on the long-term outlook of PANTECH due to (i) resilient oil prices encouraging upstream capex; and (ii) downstream growth from policy supports such as the New Industrial Master Plan 2030 and the Chemical Industry Roadmap 2030. Notably, tender for Pengerang Integrated Petroleum Complex is expected to commence in mid-2024.

Valuation

• We roll forward our base year of valuation. Reiterate Buy with a higher TP of RM1.23 (previous: RM1.18) based on 10x CY25 EPS. PANTECH presents as an attractive dividend play, offering 5.8%-6.7% dividend yield for FY25-FY27, supported by free cash flow yield of above 10%.

Source: TA Research - 26 Apr 2024