We expect 4QFY24 profit to improve QoQ to RM24-28mn on the back of increased demand from local O&G projects and exports. The group is also expected to declare a dividend of 1.5sen/share, bringing FY24 DPS to 6.0sen. We are sanguine on the outlook for PANTECH due to: (i) Resilient oil prices encouraging upstream capex; and (ii) Downstream growth from policy supports. No change to earnings forecasts. Reiterate Buy with an unchanged TP of RM1.18/share pegged to 10x CY24 EPS.

Results Preview

Pantech Group Holdings Bhd (PANTECH) is expected to release its 4QFY24 results this month. We expect 4QFY24 profit to improve QoQ to RM24-28mn (3QFY24: RM20.4mn) on the back of increased demand from local oil and gas (O&G) projects and exports. This represents 25-29% of our full-year forecast. The group is also expected to continue declaring a dividend of 1.5sen/share for 4QFY24, bringing FY24 DPS to 6.0sen (FY23: 6.0sen), translating into an attractive dividend yield of 6%.

Resilient Oil Prices Encouraging Higher Upstream Investment

O&G sector remains the key contributor for PANTECH, consistently making up more than 50% of its revenue. With expectation of strong oil prices on the back of (i) continuation of production cut by OPEC+; (ii) stronger demand as manufacturing activity in China and USA both expanded for the first time in March 2024; and (iii) geopolitical tension in the Middle East, this will drive more upstream capex, hence increasing PANTECH’s demand. National oil company Petronas guided a capex of RM300bn from 2023-2027, or an average of RM60bn per annum, compared with RM45.0-47.8bn registered between 2017-2019 pre-pandemic.

Downstream Growth From Government Policies and Plans

Malaysia is supporting the growth of the chemical industry under the New Industrial Master Plan 2030 (NIMP2030) and the Chemical Industry Roadmap 2030 (CIR2030). CIR2030 is expected to increase the chemical sector's gross value add to the overall economy to more than 4.5% by 2030 from 3.4%, while NIMP2030 intends to move Malaysia up the value chain from basic chemicals to specialty chemicals. Johor state government expects the Pengerang Integrated Petroleum Complex (PIPC) to secure RM60bn investments in phase 3 (2026- 2031), including for the construction of bio-refineries and facilities producing nitrile-related products. PANTECH is the key beneficiary as the group is the market leader in the pipe, valve and fitting (PVF) business in Malaysia. We understand that the tender for PIPC is expected to commence in mid-2024.

Impact

No Change to Earnings Forecasts.

Valuation

Reiterate Buy with an unchanged TP of RM1.18/share pegged to 10x CY24 EPS. PANTECH offers an attractive dividend yield of 6.0-6.5% for FY25-26 and is currently trading at 8.5x CY24 EPS compared with peers at around 9.0x PER.

Source: TA Research - 17 Apr 2024