Valuation / Recommendation

Results were above expectations, achieving 79.6% and 99.9% of our full year revenue and profit forecasts for FY22 due to higher local oil and gas demand, stable palm oil prices, robust export demand and higher product prices.

We revise our revenue and earnings estimates upwards by 4% and 26.8-34.0% for FY22-FY23F on the premise of higher growth for its manufacturing and trading division moving forward. We maintain a BUY recommendation on Pantech Group Holdings Bhd with a revised TP of RM0.870 based on FY23F EPS 8.4 sen and PE of 10.4x in line with the 5-years average. We like the stock based on a 2-year CAGR forward earnings of 55.1%, attractive dividend yield, and cheap valuations.

Investment Highlights

Key catalyst was from the manufacturing and trading division, contributing 49% and 51% to total revenue for the current quarter. Trading operations were optimised, and deliveries to local oil and gas sector increased. Petronas increased annual capex allocations from 5% to 9% suggesting a positive industry outlook, potentially adding tally to the Group’s current order book of RM550m.

Manufacturing operations were optimised. Results were stronger due to better product mix, resulting in higher product price, to meet increased export demand supported by the reopening of the economy and waning impact from the Covid-19 pandemic.

The company currently has an attractive dividend yield above 3%, with low gearing below 10%.

Dividend. Dividend of 1 sen per share was declared on 3Q22, ex on 25th Feb 2022. (9M22 – 2.5 sen, 3Q21 – 0.5 sen, 9M21 – 1.3 sen)

Risk factor. Key risks include fluctuation of steel prices and demand of steel products, labour shortage, and slower-than-expected contract flows

Source: Mercury Research - 24 Jan 2022