Pantech Group Holdings Bhd
(July 26, 50.5 sen)
Maintain buy with an unchanged target price of 63 sen: Pantech’s first quarter ended May 31, 2020 (1QFY20) profit after tax declined 21% year-on-year (y-o-y) to RM11.2 million amid lower revenue as quarterly revenue decreased 19% y-o-y to RM145 million.

 
Revenue from the trading division dropped 12.5% y-o-y to RM90.3 million while sales from the manufacturing division declined 24% y-o-y to RM54.7 million due to suspension of export of carbon steel butt welded fittings to the US following a 183% anti-dumping tax imposed on Pantech.

Net earnings for 1QFY20 decreased 2.5% quarter-on-quarter (q-o-q) on the back of a 1.7% q-o-q gain in revenue. Trading revenue dropped 4% q-o-q while manufacturing division’s revenue rose 15% q-o-q.

Operating margin was flat at 11.9% versus 11.5% in 4QFY19. However, net margin was lower at 7.7% due to higher tax rate of 22% versus 18% in 4QFY19.

Pantech has declared an interim dividend of half a sen per share. The quarterly net profit of RM11.2 million achieved 21% of our full-year estimate of RM54.6 million while revenue accounted for 22% of our financial year ending Feb 28, 2019 (FY19) expectation at RM653 million.

We are keeping our revenue and earnings per share (EPS) forecasts for FY20 and FY21 as the US Department of Commerce has lifted the anti-dumping tax on Pantech’s carbon steel butt-weld pipe fittings. As such, we expect earnings to improve in the coming quarters.

Our target price is based on FY20 EPS forecast and price-to-earnings ratio of nine times.

Prospects are brighter as the oil and gas companies are lifted by the recovery in oil prices.

As a leading pipes, valves and fittings company in the country, Pantech is in a strong position to benefit from increased upstream activities in the oil and gas industry. — JF Apex Securities, July 26