Pantech likely to secure RM1.7bil PIPC jobs

PETALING JAYA: Pantech Group Holdings Bhd stands a good chance to win up to RM1.7bil worth of jobs in relation to the oil and gas (O&G) downstream activities at the Pengerang Integrated Petroleum Complex (PIPC), Alliance Research says.

The brokerage, which initiated coverage on Pantech yesterday with a “buy” call and a target price of RM1.55, said in its report that Pantech, which specialises in the production of steel pipes, valves and fittings (PVF), was expected to emerge as a key beneficiary of the Pengerang downstream boom.

“Pantech is poised to get a piece of this pie, given its market lead, established track record and location in Pasir Gudang,” Alliance Research said, noting that Pantech currently commanded 40% of the PVF market share in Malaysia.

“If 5% of the RM87bil project value is for PVF, and Pantech secures 2% of that, it would translate into RM1.7bil in supply contracts from the PIPC over the next five years,” the brokerage said.

Scheduled for completion in 2019, the US$27bil (RM87bil) PIPC comprises a world-scale refinery and petrochemical integrated development and associated facilities. To date, a total of RM25bil worth of projects for the refinery complex, steam cracker, cogeneration plant and other facilities have been tendered.

Alliance Research said it expected the construction of the main processing plants to commence by mid-2015, suggesting demand for PVF to pick up soon after.

It said its target price of RM1.55 for Pantech’s shares was pegged to 13 times the company’s estimated earnings for the financial year ending Feb 28, 2016.

“For an O&G play, (current) valuations are undemanding even after an earnings per share dilution, at 11 times 2015 earnings and only nine times 2016 earnings,” Alliance Research said.

“This makes Pantech one of the cheapest small-cap O&G plays in the market. We believe the stock will re-rate closer to its peer average of 13 times price-to-earnings, supported by a 20% three-year compounded annual growth rate, 4.4% dividend yield and a clean balance sheet with only 0.3 times net gearing,” it said.