Pantech Group Holdings Bhd
(April 27, 75.5 sen)
Maintain buy with target price (TP) of 95 sen: Pantech’s earnings for financial year 2015 ended February (FY15) were 8% or RM4 milllion below our and consensus estimates. The trading business did poorly this quarter, with lower demand from the oil and gas (O&G) industry as well as competitive pricing which had hurt group margins.

The manufacturing segment, on the other hand, performed as expected, reporting stable export demand for carbon steel pipes and fittings. This helped to offset the weaker demand for stainless steel products.

Pantech has proposed a final dividend of 0.5 sen and share dividend equivalent of 0.66 sen per share. This brings the full-year payout to 2.8 sen, which is short of our expectation of 3.5 sen. The group is likely to conserve its cash given the current industry downturn.

We expect the first half ending August 2016 (1HFY16) to be challenging for Pantech and its results are likely to be similar or weaker than in the fourth quarter. Offshore demand will continue to be weak, until we see a revival of new projects from Petroliam Nasional Bhd. The outlook for 2HFY16 is better; we expect Pantech’s earnings to pick up as orders from the refinery and petrochemicals integrated development in Pengerang, Johor start to trickle in. Demand for pipes, valves and fittings typically picks up only after major construction activities have started. On this front, we maintain our FY16 earnings for now.

We view that because of the high O&G industry exposure and earnings driver from the Pengerang integrated petroleum complex. As such, we peg FY16F earnings per share to the small-cap O&G services provider average valuation of 10 times to derive a TP of 95 sen. — AllianceDBS Research, April 27

This article first appeared in The Edge Financial Daily, on April 28, 2015.