Profit jumped. As mentioned in last Friday's report titled A Solid Start Seen, Pantech's  1QFY13 results showed healthy growth and was largely in-line with our and consensus expectation, with net profit almost doubling y-o-y. Such robust results were mainly attributed to the solid foundation in its carbon steel division, gradual improvement in the stainless steel division and the contribution from newly-acquired UK-based subsidiary Nautic Steels Group.

Business arms performed well. Its trading division recorded both higher revenue of RM90.1m (1QFY12: RM70.1m) and pre-tax profit of RM15.0m (1QFY12: RM8.9m), mainly due to the improved sales demand from the oil and gas sector coupled with better-controlled operating expenses. As for its manufacturing division, revenue was recorded at RM55.1m (1QFY12: RM25.2m) and pre-tax profit at RM4.7m (1QFY12: RM1.2m). UK-based subsidiary Nautic Group registered higher margins, thereby contributing higher revenue, and both the carbon and stainless steel divisions increased manufacturing output. Pantech's stainless steel manufacturing plant also reported improved efficiency.

UK investment the right decision. We are delighted to see earnings contributions from the Nautic Group flowing in so soon, helping to lift both the company's top and bottom lines. We think Pantech has largely benefited from this deal, as it has not only increased the product range for Pantech, but given it an opportunity to gain access the international oil majors to sell its products as well. We believe Nautic Group's contribution will strengthen going forward as its operational and production efficiency improves.