This article first appeared in The Edge Financial Daily on September 28, 2017 - October 4, 2017

Pantech Group Holdings Bhd
(Sept 27, 67 sen)
Reiterate buy with an unchanged target price (TP) of 75 sen: Following the release of strong first quarter of financial year 2018 (1QFY18) results, we believe Pantech Group Holdings Bhd’s earnings rebound momentum will persist into 2QFY18, underpinned by more orders from the Refinery and Petrochemical Integrated Development (Rapid) project. Its valuation is attractive at 10 times FY18 fully diluted earnings per share (EPS). Pantech also offers one of the highest dividend yields in our oil and gas universe at 4% to 5%. The stock offers a total upside potential of about 21%.

We are more bullish on our earnings estimates as we believe Pantech’s earnings recovery will be supported by positive order flows from Rapid and the stabilisation of global steel prices. However, we believe consensus will revise earnings upwards in 2QFY18, as 1QFY18 net profit has met 34% of consensus’ full-year estimate.

Pantech has a dominant local market share of 40% for the supply of pipes, valves and fittings (PVF). Coupled with its move to set up a warehouse in Pengerang and a galvanising plant in Tanjung Langsat, we believe Pantech is well-positioned to benefit from more Rapid orders. Beyond strong organic growth, Pantech is also on the lookout for earnings-accretive mergers and acquisitions given its strong balance sheet. 

Rapid will still be a strong revenue contributor at an estimated RM150 million in FY18. More-over, margins from Rapid-related projects are expected to improve due to an enhanced product mix consisting of PVF compared to lower margin structural steels in the previous quarters. We believe the contribution from Rapid to grow further in FY19 and FY20 to more than RM200 million per annum. — Alliance DBS Research, Sept 27