Review

• Pantech Group Holdings Bhd’s (PANTECH) 1QFY25 results were in line with expectations. 1QFY25 core net profit of RM29.4mn (+7.9% QoQ, +26.1% YoY) came in at 30% of ours and 26% of consensus’ full-year forecasts.

• The group proposed a first interim dividend of 1.5sen/share, same as corresponding period last year.

• YoY: 1QFY25 PBT dropped 1.2% YoY dragged by Manufacturing segment (PBT -13.4% YoY), weighed down by unfavourable foreign exchange rate for the export market. This is despite better product mix for the Trading division (PBT +14.6% YoY).

• QoQ: Revenue increased by 11.3% QoQ driven by better sales growth in both Manufacturing division (+10.2% QoQ) and Trading division (+12.6% QoQ). However, PBT dropped by 1.5% QoQ. The lower PBT was mainly due to higher operating expenses.

Impact

• After incorporating FY24 audited numbers, we adjust our FY25-FY27 earnings forecasts marginally by 0.0%-0.1%.

Outlook

• To recap, PANTECH plans to list its wholly-owned subsidiaries in the Manufacturing division, Pantech Stainless & Alloy Industries Sdn Bhd and Pantech Steel Industries Sdn Bhd on the Main Market via a special purpose vehicle by year-end. The listing will likely lead to immediate earnings dilution. Assuming listing of 30% stake, profit of RM50mn per annum from both subsidiaries, no additional earnings growth from the listing, 12x listing PE and 3% interest rate, this is expected to dilute EPS by 1.1sen/share.

• Nonetheless, we are sanguine on the long-term outlook of PANTECH due to (i) resilient oil prices encouraging upstream capex; and (ii) downstream growth from policy supports such as the New Industrial Master Plan 2030 and the Chemical Industry Roadmap 2030.

Valuation

• Reiterate Buy with a higher TP of RM1.27/share pegged to 10x CY25 EPS as we incorporate an ESG Premium of 3%. PANTECH presents as an attractive dividend play, offering more than 5.0% dividend yield for FY25- FY27, supported by free cash flow yield of above 10%.

Source: TA Research - 31 Jul 2024