We maintain BUY on Pantech with an unchanged TP of MYR1.25 (26.9% upside, 12x FY15F P/E). It will announce its 1HFY15 (Feb) results early next week, and the numbers may come in flattish on  a QoQ basis.  We advise  investors  to  look  beyond  its  FY15  numbers  as  RAPID  projects could  propel  its  earnings,  while  its  continuous  efforts  to  enhance  its profit margin may yield healthy results in the future.

Results preview. Pantech is scheduled to announce its 1HFY15 results early next week and we are of the view that the numbers – which could be flattish on a QoQ basis – may dip in a YoY comparison. Having said that,  we  advise  investors  to  look  beyond  its  FY15,  as  the  long-anticipated RAPID projects should propel the company’s earnings to the next  level.  We  maintain  our  earnings  forecast,  as  we  expect  the numbers to pick up more strongly in 2HFY15.

Refinery  and  Petrochemical  Integrated  Development  (RAPID)  is moving. The RAPID project is picking up pace, although its execution is slower  than  expected.  We  believe  its  momentum  will  accelerate,  and the  initial  start-up  jobs  are  in  progress.  As  highlighted  in  our  19  May report,“Pantech - To Grow With RAPID And Overseas O&G”, based on simple average calculations, the RAPID projects may help to generate revenues  of  MYR300m  annually  for  a  6-year  period for  Pantech’s trading division.

Margin  improvement.  We  learnt  Pantech  has  recently  installed  two new  machines  in  its  UK  Nautic  Steel  plant  to  improve  production efficiency. Going forward,  we  could  expect  more margin  enhancement from its manufacturing division. With that, Pantech is poised for  strong growth once business volume starts to pick up. Note there is no heavy capex investment in those machines, and Pantech’s balance sheet – as well as cash flow – remain healthy.

Remain  BUY.  As  we  are still upbeat on the company’s long-term outlook,  we maintain  our  BUY  call  and  TP of  MYR1.25,  based  on  12x FY15F P/E. We believe Pantech will maintain its dividend payout of at least  40%  (no  dividend  policy),  which  translates  to  a  dividend  yield  of 4% at its current level.

Financial Exhibits

SWOT Analysis

Company Profile

Pantech is primarily involved in the manufacturing and trading of pipes, fittings and flow controls.

Recommendation Chart

Source: RHB