We  like  Pantech  (PGHB)  for  its  solid  foundation  and  sustained  high growth  potential,  riding  on  the  domestic  as  well  as  global  oil  &  gas (O&G)  boom.  The  company  is  expanding  aggressively  overseas  and has established business  ties  with oil majors such as Petrobras, Saudi Aramco and Pertamina. We have a BUY rating  on PGHB and a MYR1.43 FV, which offers a 47% potential upside.

• Supplier  of  steel  pipes  and  fittings.  Pantech  manufactures  and markets pipes, fittings and flow  control products (PFF)  used  in pipelines, refineries,  processing  plants  and  marine  vessels.  PGHB  also manufactures carbon  steel fittings, stainless pipes and fittings, induction long bends and copper nickel fittings.
• Earnings growth catalysts.  We expect  PGHB’s earnings  growth to be bolstered by: i) a strong pickup in local (Malaysian) O&G activities, ii) the company’s  global expansion  assisted  by  its UK-based subsidiary Nautic Steel,  and  iii)  its  focus  on  improving  its  profitability  by  diversifying  into higher-margin niche products.
• Buoyed by O&G sector growth. We expect a bright outlook for PGHB,aided  by  Petronas’  aggressive  capex  plan,  which  should  bolster  O&G activities domestically. On the global front, PGHB is focusing on Brazil as the  main  growth  market  for  Nautic  Steel’s  products,  and  has  the country’s  state-owned  O&G  major,  Petrobras,  among  its  key  clients. Pantech,  via Nautic Steel, has also made inroads into Saudi Arabia by supplying products to the state-owned  O&G corporation,  Saudi Aramco. The recently-secured contract from Indonesia’s  Pertamina for the supply of  induction  long  bends  further  reinforces  the  company’s  aggressive overseas expansion plans.
• Our  MYR1.43  FV  offers  a  47%  upside.  PGHB’s  focus  on  the  O&G sector  and  its  aggressive  overseas  expansion  should  translate  into strong  growth  potential  for  FY14-15.  With  an  expected profit  growth  of 15% for FY14-15, we value PGHB at a 13x FY14 P/E. Given that 80% of its  profit is  derived from the O&G sector, the stock provides an exposure to  the  growing  O&G  sector  at  low  valuations.  Maintain  BUY  and MYR1.43 FV. 

Source: RHB