We believe earnings to come in sequentially flattish at roughly RM11m, as we are not anticipating any negative surprises. Stronger earnings are expected to come into play in the 2H of the year, underpinned by its restoration of shipments for its carbon steel butt-weld fittings to the U.S. BUY with TP of RM0.69 pegged to 0.9x PBV on FY20E - implying 12x PER, which is close to its 5-year average. We continue to like PANTECH, more so with the U.S. shipment suspension overhang now finally lifted, restoring its earnings and dividend visibility.

We are expecting stronger performance to kick in the 2H of the year, underpinned by the uplifting of its shipment ban for carbon steel buttweld pipe fittings to the U.S. last month. To recap, in July 2018, the DOC issued a preliminary affirmative anti-dumping circumvention determination concerning carbon butt-welds fittings from Malaysia.

And as a result of this, PANTECH had suspended shipments of its carbon steel butt-weld fittings to the U.S. since then, leading to lessthan-spectacular earnings growth and dividend pay-out in FY19. However, last month, the DOC overturned this with an issued affirmative determination, which effectively uplifts existing suspension of shipments of its carbon steel butt-weld fittings to the U.S.

This aside, we believe PANTECH could also possibly benefit from a higher local oil and gas upstream capex environment. PANTECH provides pipes, valves and fittings not only used for the transportation of oil and gas, but also for the engineering and construction phases of offshore fields (e.g. used as topside structures or jackets), with it being the only locally-owned pipe supplying company under the “Petronas Framework Agreement”.

Source: Rakuten Research - 24 Jul 2019