Thursday, July 11, 2013

Pantech - Breaking Into Indonesia’s O&G Sector

Pantech -
Price Target:1.43
Last Price:0.995
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.

Source: RHB

Publish date:11/07/13

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