Breaking Into Indonesia’s O&G Sector
Pantech (PGHB) announced on Bursa Malaysia yesterday that it has secured a USD1.5m (MYR4.8m) contract to supply induction long bends to Indonesia’s state-owned O&G corporation Pertamina in 2QFY14. We see this opening up opportunities for PGHB to make inroads into Indonesia. As we are still upbeat on the company’s future outlook, we eiterate our BUY recommendation, with our FV unchanged at MYR1.43. At single-digit P/E, PGHB provides a cheap exposure to O&G play.
- New opportunities emerge. Although the contract value is not big, it is a good start for PGHB as it gives the company an opportunity to get break into Indonesia’s oil and gas (O&G) sector. Induction long bends are high profit margin products (30%-40% margin) hence contribution could become sizeable if PGHB is able to grow its volume. Via this maiden collaboration with Pertamina, PGHB can also market O&G related services and products of its subsidiary Nautic Steel, such as carbon steel fittings, stainless steel pipes and stainless steel fittings, as well as exotic copper nickel products, in Indonesia.
- High capex needed in Indonesia’s O&G sector. We understand that Indonesia’s O&G companies are targeting to spend about USD19bn in capex this year while Pertamina, which plans to expand the resource base, may also pour more capex into offshore and onshore activities when such opportunities arise. This is indeed good news for PGHB as the rising capex will spur demand for its products.
- Outlook still optimistic. The company is on track with Management’s target of achieving MYR1.0bn in revenue by FY16F. Nonetheless, we are keeping our earnings forecasts status quo at this juncture, pending the release of the company’s upcoming results at the end of this month.
- Reiterate BUY, with MYR1.43 FV. We continue to like PGHB’s solid foundation, which rightly justifies our 13x target P/E as its O&G customers are global majors such as Petronas, Petrobras and Saudi-Aramco. Note that 80% of PGHB’s earnings come from the O&G sector, hence the stock provides a cheap exposure to the O&G play. All said, we are reiterating our BUY call, with our MYR1.43 FV unchanged.