PANTECH posted its first quarterly losses, as widely expected, given that some of its operations were suspended during the MCO. With operations allowed to resume since April 2020, we expect a gradual recovery in the upcoming quarters. Nonetheless, given the value chains that the company is exposed to, PANTECH will still be adversely affected by the global trend of capex cuts among oil majors, impacting its sales growth outlook. Maintain UP, with TP of RM0.31.

1QFY21 deemed broadly within expectations. PANTECH recorded 1QFY21 net loss of RM5.6m – deemed broadly within expectations against our FY20E earnings of RM18.8m and consensus of RM25m, in anticipation of recovery in the upcoming quarters. The losses this quarter were generally expected, as some of its operations were suspended during the movement control order (MCO). The group also announced a dividend of 0.3 sen per share, within expectation.

1QFY21 dips into the red. This marks as the company’s first quarterly losses. As aforementioned, both of the company’s core segments (i.e. trading and manufacturing) suffered from poorer results as they were unable to operate during the MCO, resulting in 44% loss of revenue, both YoY and QoQ.

Expect a stronger 2HFY21. Despite losses this year, the group should still remain profitable on a full-year basis. Operations have already resumed since April 2020, and hence, gradual recoveries in the upcoming months can be expected. However, on the bigger picture, PANTECH is also seen to be adversely affected by the global trend of capex cuts by major oil producers. PANTECH’s business relies on greenfield investments to drive its sales, and hence, lowered capex spending by the oil majors would generally weaken its sales outlook moving forward.

Maintain UNDERPERFORM and TP of RM0.31, pegged to 7x PER on FY22E EPS – in line with -2SD from mean valuations, given its exposure to the capex-dependent value chains within the oil and gas sector. No change to our FY21-22E earnings post-results.

Risks to our call include: (i) huge surge in trading volumes, (ii) higher demand for manufactured products, and (iii) stronger-than-expected product margin mix.

Source: Kenanga Research - 24 Jul 2020