A good start in sight. We expect Pantech to report healthy 1QFY13 earnings growth, mainly boosted by the maiden contribution from its newly acquired UK subsidiary, Nautic Group, the gradual improvement in its stainless steel segment, as well as steady contribution from its well-established carbon steel division.

Strong contribution from Nautic Group. Pantech acquired Nautic Group in March 2012 (beginning of 1QFY13) for GBP9m (about RM45.0m). One of the conditions imposed on the transaction is that the founder of Nautic has to stay on with the company for a year to ensure a smooth transition and ensure that Pantech does not have to go through the hassle of restructuring the former's operations. As such, we expect the profit from Nautic to start flowing in as soon as from 1QFY13, and possibly increase as Pantech makes improvements in the unit's operations and sales.

Stainless steel business on the mend. It has been a steep learning curve for Pantech, but after a long gestation of one-and-a-half years, we believe its stainless steel division is maturing and its losses should begin to narrow. We expect this division to at least break even, if not contribute a marginal profit, in FY13. While we understand that it is usual for a manufacturing company to incur losses at the early stages of a new plant, we think Pantech has been making good progress in its stainless steel business venture.

Lucrative dividend payout may continue. Pantech has been very generous in its dividend payout in the last two financial years. The company's dividend payout ratio was more than 40% in both FY11 and FY12. We believe the company may maintain this lucrative payout policy for its financial year ending February 2013.