Pantech Group Holdings Berhad (Pantech) is a One-Stop Centre for pipes, fittings, flanges, valves, and other components providing total solutions for gas and fluid transmission system. Expansion of new capacity in FY21 has provided the company the ability to galvanise smaller fittings in greater volume respectively. Based on our earnings estimates, Pantech’s dividend payout should improve, pushing its prospective yield to around 6%. BUY with a target price of RM0.88 based on a PER of 10x (3 years historical average).

Pantech operates can be segmented into: (i) Trading; and (ii), Manufacturing. The Trading segment is engaged in trading, supply and stocking of high pressure seamless and specialized steel pipes, fittings, flanges, valves and other related products for use in the O&G, gas reticulation, marine, palm oil refining and other related industries. The Manufacturing segment is engaged in manufacturing of butt-welded carbon steel fittings, stainless steel and alloy pipes, fittings and related products for the use in the O&G, marine, palm oil refinery and oleochemical, power generation, pharmaceutical, water and other related industries.

Petronas’ announcement of increasing its annual capex allocation from 5% to 9% provides an opportunity for Pantech. Moreover, the global economic recovery post Covid19 will see a spike in demand of pipes and valves for O&G and other applications, hence presenting strong prospect for the company.

Pantech is expected to stage a strong recovery in FY22 as the company’s manufacturing division has received orders up to May 2022 and the numbers are increasing fast. As for the trading division, the company has in excess of 30,000 stock keeping units (SKU), well positioned to meet the increasing demand of its customers. Additionally, Pantech’s 6MFY2/22 earnings grew by about six folds to RM30.5m. We expect performance for 2HFY22 will be slightly better due to the reopening of economy and higher activities within the O&G sector as a result of higher crude oil price. Financial leverage is manageable with net gearing of 5% as at 1HFY2/22. We expect Pantech to register net earnings of RM64.7m and 70.5m for FY2/22 and FY2/23 respectively.

Our BUY recommendation is premised on (i) pent up demand of pipes and valves post Covid19; (ii) increasing manufacturing output as a result of recovery within the O&G sector post pandemic; (iii) cheap valuations; and (iv) attractive dividend yield.

Source: Rakuten Research - 24 Nov 2021