This article first appeared in Capital, The Edge Malaysia Weekly on March 3, 2025 - March 9, 2025

PANTECH Global Bhd (KL:PGLOBAL), the spin-off unit of Pantech Group Holdings Bhd (KL:PANTECH), is making its debut on Bursa Malaysia’s Main Market on Monday, March 3. The special purpose vehicle was formed for the listing of the group’s subsidiaries Pantech Stainless & Alloy Industries Sdn Bhd (PSA) and Pantech Steel Industries Sdn Bhd (PSI), which manufacture weld pipe fittings and welded pipes.

The initial public offering (IPO) involved a public issue of 262.23 million new shares, equivalent to a 30.58% stake, aimed at raising RM178.32 million for the company. A total of 21.25 million new shares were made available to the Malaysian public via balloting, 10.63 million of which were set aside for bumiputera investors.

Some 29.75 million new shares were made available to eligible persons and 35 million shares to entitled shareholders of Pantech Group under a restricted offering, while 69.97 million new shares would be placed out to institutional and selected investors. Entitled shareholders of the group would get one IPO share for every 25 existing shares held.

There were also 106.25 million new shares allocated to bumiputera investors approved by the Ministry of Investment, Trade and Industry by way of private placement.

Post-listing, Pantech Group will remain the major shareholder of Pantech Global with a 69.15% stake.

At the IPO price of 68 sen, Pantech Global will have a market capitalisation of RM578 million upon listing, valuing the company at 11.62 times its earnings per share of 5.85 sen, derived from its net profit of RM49.71 million for the financial year ended Feb 29, 2024 (FY2024).

Of the RM178.32 million raised from the IPO, RM67.32 million, or 37.75% of the amount, is earmarked for business expansion, while RM64.68 million, or 36.2%, is for capital expenditure. The remainder is allocated to repayment of borrowings (RM15 million), for working capital (RM22.71 million) and to cover listing expenses (RM8.6 million).

With the money from the listing, the company plans to acquire the factory lots it is operating in Klang, Selangor, and Pasir Gudang, Johor, from related company Pantech Corp. It will also add new machinery and equipment to its facility in Klang to enhance its production capabilities and efficiency.

The group’s expansion plans include setting up an additional pickling facility with larger pickling tanks to accommodate longer pipe lengths. The additional pickling facility will increase its annual production capacity of stainless steel welded pipes to 26,850 tonnes from 23,850 tonnes currently.

Pantech Global is looking to establish a new warehouse in Pasir Gudang by 2027, which will cater to future business growth as well as provide additional warehouse space.

Headquartered in Klang, Pantech Global serves both local and overseas markets. Notably, its overseas markets accounted for 72.56% of total revenue in FY2024, with the biggest portion coming from the US at 47.44%. It expects revenue derived from foreign markets to account for 75.58% of its total revenue in FY2025.

The company’s business is divided into manufacturing of weld pipe fittings and manufacturing of stainless steel welded pipes, with the former contributing a larger portion to revenue.

Weld pipe fittings contributed RM265.13 million, or 60.12%, to its total revenue for FY2024, while stainless steel welded pipes brought in RM155.82 million, or 35.34%. The remaining 4.5% came from other business activities.

In its prospectus, the group highlighted that with the US market being its single largest geographical market, its business is dependent on that market and its major customers by virtue of their revenue contribution. It also said its exposure to the US market, including revenue from its authorised distributors in Taiwan that serve the US market, collectively accounted for 41.38% (RM145.64 million), 50.04% (RM275.97 million), 47.44% (RM209.20 million) and 43.53% (RM115.35 million) of its total revenue for FY2022, FY2023, FY2024 and FY2025 respectively.

“Our financial performance may be materially and adversely affected if there is any reduction in demand from the US market arising from, among others, any changes in economic conditions, political leadership, government policies or geopolitical events in the US,” Pantech Global cautioned when highlighting the risks it faces in its operations.

It added that any termination of the business relationships it has with its US-based customers without timely replacement and similar revenue contribution would adversely affect its business operations and financial performance.

A report by Mercury Securities said the listing of Pantech Global would offer investors a pure play exposure to Pantech Group’s manufacturing segment, which carries higher margins than its trading division.

“Following its recovery post-Covid-19 pandemic, Pantech’s manufacturing arm has consistently outperformed the trading arm in terms of profitability, with its segmental PBT (profit before tax) margins climbing from 14.6% in FY2022 to 18.9% in FY2023, before stabilising at 16.2% in FY2024,” it noted.

While its large exposure to the US market presents a risk to the company, Mercury Securities pointed out that the company’s US dollar-denominated revenue positions it favourably against currency fluctuations, particularly amid a strong US dollar environment.

Mercury Securities has a “subscribe” recommendation on Pantech Global, with a fair value of 88 sen based on 11.5 times FY2026 earnings per share, which translates into an upside potential of 29% from its IPO price.

“Given its leading market position, steady margins, exposure to overseas markets (particularly the US) and upcoming capacity expansion, we believe a target price-earnings ratio of 11.5 times is well justified.” 

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