Results

• Lower profit – Pantech’s 4QFY20 profit after tax dropped 36% YoY to RM7.2m on the back of a 13% YoY revenue decline to RM144m.

• Mixed performances – Revenue from the Trading division decreased 5% YoY to RM89m due to lower demand and delivery in local oil and gas projects. However, sales from the Manufacturing division increased 13% YoY to RM54.8m 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 8.9% vs 9.9% in 3QFY20 due to higher manufacturing cost for the initial shipment of carbon steel to the US. Net margin was also lower at 5% from 6.8% in the previous quarter while tax rate inched up to 30% vs 20% in 3QFY20.

• QoQ decline - 4QFY20 net earnings decreased 35% QoQ on the back of a 13% QoQ drop in revenue. Trading revenue climbed 6% QoQ while Manufacturing division’s revenue dropped 33% QoQ.

• Slower year – FY20 net profit tumbled 24% YoY to RM35.9m on the back of a 1% revenue decline to RM603m.

• Dividend in shares declared – Pantech has declared dividend of 1 treasury share for every 100 shares held. This came after cash dividend of 1.5 sen/share during the FY.

Earnings Outlook/Revision

• Below expectation – Twelve months’ net profit of RM35.9m achieved 66% of our full year estimate while revenue was within forecast having accounted for 92% of our FY20 expectation.

• Earnings estimates lowered – We are reducing our revenue and EPS forecasts for FY21 and FY22 by 27% and 57% respectively in anticipation of slower activity in the oil and gas industry as well as impact from COVID-19.

Valuation & Recommendation

• Downgrade to HOLD call from BUY with a lower target price of RM0.35 (previously RM0.63). Our target price is based on FY21 EPS forecast and PER of 10x times.

Source: JF Apex Securities Research - 12 Jun 2020