PANTECH has registered strong revenue and net profit growth of 28% and 58% and in FY18, supported by better performance in the manufacturing segment arising from strong global demand. With the recovering crude oil price, the management is anticipating more activities within the O&G industries, coupled with the higher demand of PVF from the shale gas segment in the US, and should benefit the group eventually. PANTECH is retesting the SMA200 and poised for a sideways consolidation breakout over the near term.

Company profile. Pantech Group Holdings (PANTECH) is engaged in two business segments, namely (i) trading division (57% of FY18’s revenue) – supplying high pressure seamless and specialized steel pipes, valves, fittings (PVF) and other related products for the use in the O&G industry and (ii) manufacturing division (43% of FY18’s revenue) - produces butt-welded carbon steel fittings and manufacturing and supply of stainless steel and alloy pipes, fittings, and related products. Also, PANTECH has a hot-dip galvanising plant in Pasir Gudang, which has a capacity of 48k tonnes per year and is currently running at 50% capacity.

Stronger results amid recovery in O&G scene. FY18 revenue rose 28.2% to RM614.7m from RM479.3m in FY17. Also, the net profit increased 58.0% to RM47.0m in FY18 vs. RM29.7m in FY17. The higher revenue was due to higher sales demand and delivery in the downstream O&G projects such as RAPID projects and the stronger net profit was attributed to the better performance in the manufacturing segment arising from greater sales demand globally.

Management remains optimistic in the O&G industry. As the crude oil has recovered from the rock bottom level in 2016, it is likely to anticipate more activities in up- and down-stream of the O&G sector. Moreover, PANTECH is benefiting from the increased shale gas interest in the US, which has spurred healthy sales growth in its manufacturing division. PANTECH should be able to benefit from the gradual recovery of O&G sector and the continuous development of RAPID projects and associated facilities in southern Johor.

Poise for a sideways consolidation breakout. PANTECH has turned sideways over the past month after surging above the downward channel and has been retesting the SMA200 level. The MACD Indicator is trending higher above the zero level, while the RSI and Stochastics oscillators are hovering in the positive region (above 50). We may anticipate a follow-through buying support after the flag formation breakout accompanied by higher volumes yesterday. The resistances will be located around RM0.68-0.70, followed by LT target of RM0.73. Support will be pegged around RM0.58-0.595, with a cut loss set around RM0.57.

Source: Hong Leong Investment Bank Research - 8 Jun 2018