Results

• Improved profit – Pantech’s 3QFY19 profit after tax rose 11% YoY to RM11.2m amid lower revenue as quarterly revenue decreased 10.5% YoY to RM140.2m.

• Mixed performances – Revenue from the Trading division rose 11% YoY to RM94.4m while sales from the Manufacturing division declined 36% YoY to RM45.7m due to suspension of export of carbon steel butt welded fittings to the US following a 183% anti-dumping tax imposed on Pantech.

• Flat QoQ - 3QFY19 net earnings increased 3% QoQ on the back of a 5% QoQ decline in revenue. Trading revenue dropped 1% QoQ while Manufacturing revenue fell 13% QoQ.

• Improved 9M – Despite lower sales in the quarter, 9MFY19 net profit added 5% YoY to RM36.2m on the back of a 0.3% revenue growth to RM466.6m.

• Steady margins – Operating margin was flat at 11.7% vs 11.9% in 2QFY19. However, net margin was higher at 8% from 7.3% in the previous quarter due to lower tax rate of 20% vs 27% in 2QFY19.

• Dividend in shares declared – Pantech has declared a second interim dividend of 1 treasury share for every 100 shares held. This came after the first interim dividend of 0.5 sen cash per share in the previous quarter. Retail investors may need to adjust their holdings before ex-date on 20 March 2019 to avoid odd lots.

Earnings Outlook/Revision

• Earnings within expectation – Nine months’ net profit of RM36.2m achieved 69% of our full year estimate of RM52.6m while revenue accounted for 72% of our FY19 expectation.

• Earnings estimates maintained – We are keeping our revenue and EPS forecasts in anticipation of a better 4QFY19.

Valuation & Recommendation

• Maintain Buy call with an unchanged target price of RM0.63. Our target price is based on FY19 EPS forecast and lower PER of 12x times with a +1 standard deviation over its 3-year mean PER.

• Potential reversal - The management is using legal means to contest the US Department of Commerce’s decision to impose the anti-dumping tax. Pantech could enjoy a favourable outcome if the decision is reversed.

Source: JF Apex Securities Research - 18 Jan 2019