PETALING JAYA: The worst could be over for pipe, flange and valve manufacturer Pantech Group Holdings Bhd and the company is on track for gradual recovery.
Kenanga Research, in a report, said it believes the losses the group had faced in the first quarter should be a non-recurring event.
Pantech recorded a net profit of RM10.7mil in its most recent quarter compared to the net loss of RM5.6mil recorded in its first quarter of financial year 2021.
This was mainly due to the resumption of normal business activities after operations were temporarily suspended in the first quarter to comply with the movement control order, Kenanga noted.
Year-on-year, Pantech’s net profit is also up by 49%. “Nonetheless, we feel its current premium valuation is unjustified – at 17 times forward price earnings ratio – with the sector still in the midst of a down-cycle, ” Kenanga told clients. Pantech finished at 42 sen yesterday, valuing the company at RM319mil.
In its report, the research outfit said it believes that the upcoming quarter may still see a “slight dip” as sales demand normalises, but nonetheless, the worst should be over.
“However, based on a bigger picture, Pantech is seen to be adversely affected by the global trend of capital expenditure (capex) cuts by major oil producers.
“Pantech’s business partially relies on green-field investments to drive sales, and hence, lowered capex spending by the oil majors would generally weaken its sales prospect, moving forward.”
Kenanga is maintaining an “underperform” call and target price of 31 sen on the Pantech stock for now.
Risks to its call include stronger-than-anticipated sales and higher than expected demand for manufactured products.