(The information from various research reports is used.)
The earnings of Pantech Group Holdings Berhad is accelerating because RAPID impact kicked in. I set a target price of RM0.705 (PE 8X of FY17 EPS RM0.0885, last traded RM0.565, potential upside of 25%)
Review and outlook of business performance:
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It is well-positioned as a one-stop solutions provider in the supply of pipes, fittings and flow controls. It is in a niche market, which could result in high margins.
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Has a global business network, which includes oil majors like Saudi Aramco and Petrobras.
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3QFY16 net profit increased 22.2% YoY and 6.4% QoQ to RM11.7m. Similarly, quarterly revenue gained 16.1% YoY and 18% QoQ to RM144m. Margin improved to 11.6% in 3QFY16 vs. 10.3% in 2QFY16.
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Revenue from Trading division improved 46% YoY and 26.3% QoQ to RM95.5m. Contribution from trading surged to 66% of total sales (3QFY15: 53%). Trading EBIT margin strengthened to 11.6% from 7.5% in 3Q15.
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9MFY16 revenue from local operations grew 4% YoY to RM419.2m from RM404.3m.
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In 3QFY16, Pantech continued to benefit from FX gains (RM4m) arising from USD sales. This aided in boosting revenue (+19% QoQ, +2% YoY).
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Earnings are expected to pick up in 4Q with ongoing contribution from RAPID and also the company's internal cost cutting measures.
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PVF contracts tendered is estimated to be around RM500m.
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New JV to operate in FY18 - Pantech formed a 51:49 JV to venture into the hot-dip galvanising business. The JV will invest RM30m to build a new factory by end of FY17. Pantech will benefit as it can stop outsourcing the galvanising of its PVF products.
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Business model is more resilient against oil price movements.
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The bulk of earlier works of RAPID, which were mainly earthworks have been completed. Its physical presence in Johor, and a new warehouse adjacent to the RAPID suggests that it may win more supply contracts from RAPID to help the company survive the oil price volatility over the next 5 years. The USD16b RAPID is proceeding according to plan, with Petronas dishing out more contracts in recent months. Pantech has already begun supplying small volumes related to RAPID.
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Any bottoming out of oil prices may prompt investors to refocus on Pantech.
Aggressive share buy back:
As you could read, it has bought back 0.77318% of shares.
Distribution of 1 treasury share for every 100 existing ordinary shares:
Rewarding for shareholders is its priority.
It pays dividend every quarter. Dividends of RM0.021, dividend yield 3.7%, which is reasonable.
Its NAV is RM0.82, its price-to-book ratio is 0.69!
Its free cash flow is also strong, even in this challenging time.
The average annual return of tangible equity is 18.11%, considered good.
Based on the latest annual report, some of the substantial shareholders are:
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KOPERASI PERMODALAN FELDA MALAYSIA BERHAD 9.828%
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Citibank New York 3.06%
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EMPLOYEES PROVIDENT FUND BOARD 2.1%
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Phillip Capital Management Sdn Bhd 0.82%
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Pacific Pearl Fund 0.72%
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Affin Hwang Select Balanced Fund 0.68%
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SAHAM AMANAH SABAH 0.67%
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Dimensional Emerging Markets Value Fund 0.58%
Hope you enjoy reading!