KUALA LUMPUR: Pantech Group Holding’s earnings outlook remains intact, backed by increasing pipes, valves and fittings (PVF) demand from Refinery and Petrochemical Integrated Development (Rapid) project as well as consistent optimal plant utilisations, said Kenanga Research.
The research house said on Wednesday that with no surprises in the 1H18 results, it was maintaining its earnings forecast and reiterating its Outperform call with an unchanged target price of RM0.75.
Pantech’s 1H18 results came within its expectations, with core net earnings of RM25.7mil at 54% and 56% of its and market consensus’ full-year estimates.
Despite revenue growing marginally by 4%, Q2’18 core net profit declined by 16% on-quarter to RM11.8mil due to weaker earnings contribution from both the manufacturing and trading segments.
Since the commercialisation of its 48,000mt capacity galvanising factory last December, Pantech has achieved 30-40% utilisation in 1H18.
Although the 51%-owned plant is still loss-making, the company is confident of achieving 50% utilisation which is the breakeven level by Q4’18, the research house said.
“We estimate the full utilisation will contribute additional RM8mil per annum to the bottom-line whilst complementing its existing business without the need to outsource the PVF galvanising job to third parties,” it said.
Although Pantech has no aggressive expansion plan in the near term, the company is looking to replace and upgrade part of its machinery and this would probably enhance its production capacity, the research house added.
It maintained its Outperform call on the stock with no changes in its earnings estimates and an unchanged target price of RM0.75.
“We believe Pantech deserves to trade at its average mean valuation given its recovery in profit margins, healthy balance sheet with net gearing at 0.4x, and higher order-book visibility of five months from three months previously,” it said.
Win a prize this Mother's Day by subscribing to our annual plan now! T&C applies.
