Wednesday, September 4, 2013

Pantech : In Expansion Mode (TA)

Pantech Group Holdings Berhad
TP: RM1.42
Last Traded: RM0.97
In Expansion Mode

We attended Pantech’s half-yearly Analysts’ Briefing. The key takeaways are as follows:
_ Compared to 6 months earlier, Pantech has expanded to 6 new countries, bringing its total addressable market to 59 countries worldwide.

_ Pantech had recently secured the following approvals for its products, comprising: 1) carbon steel pipes and induction long bends from Petronas, and 2) nickel alloy fittings by Norway’s NORSOK. In particular, Pantech is optimistic that NORSOK’s approval will enhance product sales significantly given the prestige associated with this certification.


_ Pantech expects to secure additional new contracts from Pertamina to provide induction long bends following its recent approval by the Indonesian national oil company.

_ Pantech had recently acquired a parcel of land measuring 7-acres located adjacent to its existing factory at Zone12B Pasir Gudang Industrial Estate for RM8mn. This new land is intended for future capacity expansion. Meanwhile, the group will move-in to its new corporate headquarters at Pasir Gudang by 3QFY14.

_ Pantech expects utilisation of its Pasir Gudang plant to remain constant at 83% for the remainder of FY13. The group is targeting it to turn profitable by FY14 after breaking even in 1HFY14. Meanwhile, the group intends to increase production of stainless steel fittings (instead of pipes) at this plant, which provides higher value per tonne, thus enhancing margins.

_ Pantech is on track to move-in to its new factory and warehouse in Tamworth, UK with built-up area of 25,000 sq ft. To recap, Pantech acquired a parcel of land measuring 55,000 sq ft located 5 minutes away from its existing Nautic facility for £1.24mn. Nautic is increasing its product range to include nickel alloy items such as duplex and super duplex products.

_ Given lack of space at Pantech’s Klang plant for expansion, the group intends to enhance value to its carbon steel products by venturing into production of different materials instead.

_ Pantech intends to conserve cash for expansion plans instead of increasing dividend payout to maintain its growth trajectory. The group intends to maintain its robust balance sheet whereby FY13 net gearing (excluding working capital) was at a healthy 0.28x.

_ The group expects earnings growth to be driven by O&G projects in Brazil whereby Nautic has secured Petrobras’ approval and had secured projects from the Brazilian national oil company.

_ The group expects trading revenue to be softer in 2QFY14 but profits to be stable.

Valuation
Reiterate Buy on Pantech with unchanged TP of RM1.42 based on 12x fullydiluted CY14 P/E. We like the stock for its generous dividend yield, margin and earnings growth on the back of capacity expansion, and leverage towards O&G capex upcycles in Malaysia and Brazil.




Source/Extract/Excerpts/来源/转贴/摘录: TA-Research,
Publish date:30/08/13

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