Pantech to enjoy higher revenue, earnings margin: TA Securities

PETALING JAYA: TA Securities is expecting increased revenue and earnings margin for Pantech Group Holdings Bhd’s as a result of the US’ move to impose tariffs on steel imports and the inflow of orders from Petronas’ Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang, Johor.

The research house said Pantech is set to indirectly benefit from the rising prices of hot rolled coil (HRC) which is a main raw material for Pantech, due to the tariffs.

“We note that HRC is Pantech’s main raw material. Hence, higher prices will increase the group’s material costs.

Nevertheless, we understand from management that the increased costs are mostly passed on to its clients,” the research house said.

Thus, we opine that rising prices of HRC will benefit Pantech, as its clients choose to stock up on inventories in anticipation of increased product prices whilst increased costs are passed on. Therefore, this will increase demand for Pantech’s products and result in margin and revenue expansion,” it expanded.

In addition to that, Pantech is expecting orders from Rapid to the tune of RM200 million per annum in FY18-19.

While Rapid is expected to be completed and begin operations next year, orders are not expected to dry up on the back of sales from Pantech’s warehouse arising from maintenance activities at the site, and development of the larger Pengerang Integrated Complex (PIC), with a projected remaining capital expenditure of US$11 billion (RM42.8 billion).

“Thus, we do not expect orders from Pengerang to slow down until full completion of PIC. Additionally, according to management, there are several big gas projects in Sabah and Sarawak such as Pegaga and Bokor gas fields,” the research house said.

For the first nine months of FY18, Pantech’s earnings grew 87.3% on the back of strong demand from Rapid and high utilisation of its plants.

This trend is expected to continue into the fourth quarter of the financial year with estimated quarterly earnings of RM8-12 million, on the back of 90% utilisation rate at its stainless steel and steel plants and in trading revenue of about RM100 million underpinned by Rapid orders.

The research house maintained a “buy” call on the stock at a higher target price of 78 sen (from 69sen) 11x CY19 price-to-earnings ratio (PER), which also represents Pantech’s 5-year historical mean PER.

Pantech’s shares fell 1.80% to 54.5 sen with 380,900 shares done, today.