Lower profit – Pantech’s 2QFY20 profit after tax dropped 34% YoY to RM7.2m despite flat revenue at RM148m.
Mixed performances – Revenue from the Trading division dropped 13% YoY to RM82.8m due to lower demand and delivery in local oil and gas projects. However, sales from the Manufacturing division increased 24% YoY to RM65.2m due to resumption of export of carbon steel butt welded fittings to the US after overturning a 183% anti-dumping tax imposed on Pantech.
Margins squeezed – Operating margin was lower at 8.2% vs 11.5% in 1QFY20 due to higher manufacturing cost for the initial shipment of carbon steel to the US. Net margin was also lower at 5% from 8% in the previous quarter while tax rate inched up to 23% vs 20% in 1QFY20.
QoQ decline - 2QFY20 net earnings decreased 36% QoQ on the back of a 2% QoQ gain in revenue. Trading revenue dropped 8% QoQ while Manufacturing division’s revenue rose 19% QoQ.
Steady year – 6MFY20 net profit tumbled 27% YoY to RM18.4m on the back of a 10% revenue decline to RM293m.
Dividend in shares declared – Pantech has declared an interim dividend of 0.5 sen/share, taking total dividend so far this year to 1 sen/share.
Earnings Outlook/Revision
Below expectation – Six months’ net profit of RM18.4m achieved 34% of our full year estimate of RM54.6m while revenue was within forecast having accounted for 45% of our FY20 expectation.
Earnings estimates maintained – We are keeping our revenue and EPS forecasts for FY20 and FY21 in anticipation that earnings from Manufacturing will improve as its carbon steel to the US gathers momentum.
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.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....