(The information from various research reports is used.)

The earnings of Pantech Group Holdings Berhad is accelerating because RAPID impact kicked in. I set a target price of RM0.705 (PE 8X of FY17 EPS RM0.0885, last traded RM0.565, potential upside of 25%)

Review and outlook of business performance:

• It is well-positioned as a one-stop solutions provider in the supply of pipes, fittings and flow controls. It is in a niche market, which could result in high margins.
• Has a global business network, which includes oil majors like Saudi Aramco and Petrobras.
• 3QFY16 net profit increased 22.2% YoY and 6.4% QoQ to RM11.7m. Similarly, quarterly revenue gained 16.1% YoY and 18% QoQ to RM144m. Margin improved to 11.6% in 3QFY16 vs. 10.3% in 2QFY16.
• Revenue from Trading division improved 46% YoY and 26.3% QoQ to RM95.5m. Contribution from trading surged to 66% of total sales (3QFY15: 53%). Trading EBIT margin strengthened to 11.6% from 7.5% in 3Q15.
• 9MFY16 revenue from local operations grew 4% YoY to RM419.2m from RM404.3m.
• In 3QFY16, Pantech continued to benefit from FX gains (RM4m) arising from USD sales. This aided in boosting revenue (+19% QoQ, +2% YoY).
• Earnings are expected to pick up in 4Q with ongoing contribution from RAPID and also the company's internal cost cutting measures.
• PVF contracts tendered is estimated to be around RM500m.
• New JV to operate in FY18 - Pantech formed a 51:49 JV to venture into the hot-dip galvanising business. The JV will invest RM30m to build a new factory by end of FY17. Pantech will benefit as it can stop outsourcing the galvanising of its PVF products.
• Business model is more resilient against oil price movements.
• The bulk of earlier works of RAPID, which were mainly earthworks have been completed. Its physical presence in Johor, and a new warehouse adjacent to the RAPID suggests that it may win more supply contracts from RAPID to help the company survive the oil price volatility over the next 5 years. The USD16b RAPID is proceeding according to plan, with Petronas dishing out more contracts in recent months. Pantech has already begun supplying small volumes related to RAPID.
• Any bottoming out of oil prices may prompt investors to refocus on Pantech.

• KOPERASI PERMODALAN FELDA MALAYSIA BERHAD 9.828%
• Citibank New York 3.06%
• EMPLOYEES PROVIDENT FUND BOARD 2.1%
• Phillip Capital Management Sdn Bhd 0.82%
• Pacific Pearl Fund 0.72%
• Affin Hwang Select Balanced Fund 0.68%
• SAHAM AMANAH SABAH 0.67%
• Dimensional Emerging Markets Value Fund 0.58%

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