Results

• Higher earnings – Pantech’s 4QFY17 net profit jumped 43% YoY and 70% QoQ to RM10.4m on the back of higher trading revenue as quarterly sales gained 40% YoY and 54%QoQ to RM152.6m due to improved sales RAPID, Pengerang.

• Improved revenue– Revenue from the Trading division surged 64% YoY and 81% QoQ to RM106.7m mainly due to RAPID while sales from the Manufacturing division improved 4% YoY and 15% QoQ to RM45.8m due to contribution from its stainless steel plant.

• Margins slightly higher – Operating margin improved to 11.6% from 10.1% in 3QFY17. Similarly, net margin climbed to 6.8% from 6.2% in 3QFY17 due to higher tax rate.

• Inflection point? - Despite the improvement in 4QFY17, full year net profit of RM29.6m dropped 22% YoY while twelve months’ revenue declined 6.6% YoY to RM479.4m. 4QFY17’s sterling performance could be an inflection point after 5 years of declining profits.

• Final interim dividend declared – Pantech has declared a final interim dividend of 0.5 sen, taking total dividend so far to 1.8 sen. This implies a payout ratio of 45% and yield of 3%.

Earnings Outlook/Revision

• Earnings above expectation – Twelve months’ net profit accounted for 108% of our full year estimate while full year revenue achieved 113% of FY17 forecast.

• Earnings estimates maintained – We are keeping our FY18 and FY19 forecasts with expectation that earnings will continue to be boosted by RAPID and recovery in oil prices but capped by start-up losses in its new galvanising plant.

Valuation & Recommendation

• Maintain Hold call with a higher target price of RM0.61. Our target price is based on FY18 EPS forecast and PER of 12x times after applying +2 standard deviation over its mean PER due to the improved conditions in the oil and gas sector

Source: JF Apex Securities Research - 26 Apr 2017