Pantech manufacturing earnings anticipated to improve

TheEdge Fri, Oct 25, 2019 09:57am - 4 years View Original


Pantech Group Holdings Bhd
(Oct 24, 48.5 sen)
Maintain buy with an unchanged target price (TP) of 63 sen:
Pantech Group Holdings Bhd’s second quarter of financial year 2020 (2QFY20) profit after tax dropped 34% year-on-year (y-o-y) to RM7.2 million despite a flat revenue of RM148 million.

 
Revenue from its trading division dropped 13% y-o-y to RM82.8 million due to lower demand and delivery in local oil and gas projects. However, sales from its manufacturing division increased 24% y-o-y to RM65.2 million due to resumption of carbon steel butt-welded fittings exports to the US after overturning a 183% anti-dumping tax imposed on Pantech.

Its operating margin was lower at 8.2% versus 11.5% in 1QFY20 due to higher manufacturing cost of initial carbon steel shipment to the US. Its net margin was also lower at 5% from 8% in the previous quarter, while the tax rate inched up to 23% versus 20% in 1QFY20.

Net earnings decreased 36% quarter-on-quarter (q-o-q) for 2QFY20 on the back of a 2% q-o-q gain in revenue. Trading revenue dropped 8% q-o-q, while revenue from its manufacturing division rose 19% q-o-q.

Net profit tumbled 27% y-o-y to RM18.4 million for the first six months of FY20 (6MFY20) on the back of a 10% decline in revenue to RM293 million.

Pantech declared an interim dividend of half a sen per share, taking its total dividend so far this year to one sen per share.

The 6MFY20 net profit of RM18.4 million achieved 34% of our full-year estimate of RM54.6 million, while revenue was within forecasts, having accounted for 45% of our FY20 expectations.

We keep our revenue and earnings per share (EPS) forecasts for FY20 and FY21 in anticipation of an improvement in manufacturing earnings as its carbon steel exports to the US gather momentum.

We maintain our “buy” call with an unchanged TP of 63 sen based on our FY20 EPS forecast and estimated price-earnings ratio of nine times. — JF Apex Securities, Oct 24

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