KUALA LUMPUR: Pantech Group Holdings Bhd
may not be able to resolve its suspension of shipments to the US in the foreseeable future, given the US government shutdown.
In a Friday report, Kenanga research said the shutdown posed "indefinite uncertainty" to the issue, pricing the stock to its floor valuation of 0.6x price-book value with a target price of 46 sen and downgrade to market perform.
"With no clarity as to when will this overhang will pass, we opted to trim our FY20E earnings by 8%, accounting for full-year loss of butt-weld fittings to the United States. However, our FY19E earning is raised by 5% on the back of the better-than-expected results," it said.
Kenanga believes that Pantech's higher-than-expected 9M19 net profit of RM36.2mil was a result of overestimation of the negative impact from its suspension of shipments of carbon steel butt-weld fittings to the US.
This followed a preliminary affirmative anti-circumvention determination issued by the US Department of Commerce in July last year.
For the nine months period ended Dec 31, 2018, the group's net profit improved 1% year-on-year (y-o-y) on the back of better performance in its trading segment and mitigation of its deteriorated manufacturing segment.
"For the individual quarter of 3Q19, net profit of RM11.2m came in higher by 11% y-o-y, thanks to jump in trading segment (+47%) coupled with improvement in trading margins by +3ppts, offsetting 47% plunge in its manufacturing segment due to the aforementioned US shipment suspensions."
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