Results

• Lower profit – Pantech’s 1QFY20 profit after tax declined 21% YoY to RM11.2m amid lower revenue as quarterly revenue decreased 19% YoY to RM145m.

• Poor sales performance – Revenue from the Trading division dropped 12.5% YoY to RM90.3m while sales from the Manufacturing division declined 24% YoY to RM54.7m 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 – 1QFY20 net earnings decreased 2.5% QoQ on the back of a 1.7% QoQ gain in revenue. Trading revenue dropped 4% QoQ while Manufacturing division’s revenue rose 15% QoQ.

• Margins still holding – Operating margin was flat at 11.9% vs 11.5% in 4QFY19. However, net margin was lower at 7.7% due to higher tax rate of 22% vs 18% in 4QFY19.

• Dividend declared – Pantech has declared an interim dividend of 0.5 sen/share.

Earnings Outlook/Revision

• Earnings within expectation – Three months’ net profit of RM11.2m achieved 21% of our full year estimate of RM54.6m while revenue accounted for 22% of our FY19 expectation at RM653m.

• Earnings estimates maintained – We are keeping our revenue and EPS forecasts for FY20 and FY21 as the US Department of Commerce has lifted the anti-dumping tax on Pantech’s carbon steel butt-weld pipe fittings. As such, we expect earnings to improve in the coming quarters.

Valuation & Recommendation

• Maintain Buy call with an unchanged target price of RM0.63. Our target price is based on FY20 EPS forecast and PER of 9x times.

• Dark clouds clearing – Prospects are brighter as the oil and gas companies are lifted by the recovery in oil prices. As a leading PVF company in the country, Pantech is in a strong position to benefit from increased activities in the upstream of the oil and gas industry.

Source: JF Apex Securities Research - 26 Jul 2019