Teh Tiong Boon

We  expect  Pantech  (PGHB)  to  report  healthy  1QFY14  results  in  the middle  of  this  week,  boosted  by  favourable  macro  factors.  We  also expect all its business arms to make positive contribution. As we think the  US  anti-dumping  issue  should  only  make  minimal  impact  on  the Group,  we  continue  to  like  PGHB’s  growth  potential.  Hence,  we maintain our BUY call, with our MYR1.43 FV pegged to a 13x FY14F P/E. 
 
- Macro  factors  benign.  With  both  local  and  global  oil  majors  pumping new investments into the oil & gas (O&G) sector, we believe  PGHB will see  positive  sales  growth  as  the oil majors’ high  O&G  capex  should translate  into  high  demand  for  the  Company’s products.  Moreover,  the fact  that  average  oil  price  is  hovering  above  USD90  per  barrel  also supports our view that O&G capex should remain healthy.  

- All  divisions  to  pull  their  weight.  In  1QFY13,  PGHB’s stainless steel division  was  incurring  losses, which  dragged down  Group  performance, while its subsidiary Nautic Steel was still in its infancy. For 1QFY14F, we expect  to  see  slight  earnings  contribution  from  the  stainless  steel division,  which  broke  even  in  4QFY13.  Although  the  contribution  from this  unit  may  be  small,  it  is  heartening  to  note  that  it  has  stopped bleeding. After having operated 12 months in the UK, we believe PGHB has  overcome  the  learning  curve  in  managing  Nautic  Steel;  hence,  we believe  the  Company  may  report  heartier  numbers.  All  said,  given  the strong  foundation  laid  by  its  trading  and  carbon  steel  fittings manufacturing  arm,  all  of  PGHB’s  businesses  now  contributing positively. As such, we expect positive earnings growth in 1QFY14.

- US  anti-dumping  measures  may  be  blessing  in  disguise.  We continue  to  believe  that  the  US  anti-dumping  measures  on  Malaysia’s stainless  steel  welded  pipes  should  make  only  minimal  impact  on PGHB’s earnings. To counter this issue, PGHB has  actually ramped up its production of stainless steel fittings, which usually fetch wider margins than  pipes.  Hence,  we  think  such  a  measure  should  be  adequate  to offset  the  decline  in  the  pipes  sales,  and  may  even  boost  the  Group’s earnings.

2013-07-23 06:46