Period      4Q13/FY13

Actual vs. Expectations     The 4Q13 core net profit of RM12.6m brought FY13 net profit to RM55m. This was within our and the consensus’ full-year net profit forecasts of RM56.8m and RM57.2m respectively.

Dividends     A NDPS of 1.2 sen has been declared, bringing the 12MFY13 NDPS to 4.6 sen, spot on with our own projection.

Key Results Highlights    QoQ, the results were also within our expectations where the 4Q13 net profit was down (-19.3%) due to the quarter being a month short with the earlier Chinese New Year celebration in 2013.

YoY, the results were higher (+21.2%) mainly due to higher revenue from the manufacturing division with the incremental earnings from Nautic Steels acquired in Mar-12.

On YTD YoY basis, the 4Q13 net profit was significantly up (+60.7%) due mainly to the recovery in the manufacturing division, which posted higher revenues (+100.2%) and EBIT (+187.7m); on the back of: 1) higher manufacturing outputs from both the carbon and stainless steel divisions; 2) the stainless steel division recovering to break even, leading to better overall margins for the division; and 3) the new contribution from Nautic Steels (which has raised Pantech’s niche market offerings.

Outlook    The trading and manufacturing divisions will continue to be buoyed by the: 1) rising project flows into the oil and gas sector; and 2) contributions from new markets with its purchase of Nautic Steels.

Change to Forecasts     As the results were within our forecasts, we are maintaining our FY14-15 net profit projections.

Rating     Maintain OUTPERFORM

Valuation     Given that we are approaching the mid-year, we have rolled forward our valuation base year to CY14.

This raises our target price to 96 sen (from 85 sen) based on CY14 FD EPS of 10.7 sen.

Our PER valuation above approximates 8.55x, which is the +0.5 SD level of the 5-year historical forward mean PER and is also similar to our targeted PER ascribed to Uzma for its small cap status.

The 29.2% potential upside for the current share price and the calendarised yield of 7.9% adds up to a potential total return of c.37.2% for the stock.

Risks     1) A downturn in the oil and gas sector which could impact the company’s prospects and 2) significant swings in the raw material cost that could impact the margins of its divisions.

Source: Kenanga