PETALING JAYA: Analysts have turned somewhat bullish on Pantech Group Holdings Bhd following its stellar comeback and strong order book.
The company made a profit of RM15.2mil for its first quarter (Q1) ended May 31, 2021, compared with a net loss of RM5.6mil in the corresponding period last year due to full trading and manufacturing operations during the quarter compared to a partial operation last year from the movement control order.
The affected plants at the time comprised its stainless steel facility in Pasir Gudang, Johor and its carbon steel plant in Klang, Selangor.
According to management, its Malaysian plants are currently operating at above full capacity with operations stretching up to weekends.
“This is on the back of strong demand and orders from both international and domestic markets. Current orders in-hand translate to revenue visibility up to January 2022,” said TA Securities in a report.
The research house noted that Pantech’s Q1 of financial year 2022 (FY22) core net profit of RM14.1mil was above its and consensus estimates, accounting for 49% of full-year forecasts, thanks to a better-than-expected product mix and strong margins. Consequently, TA has tweaked its forecast to account for the better-than-expected Q1 results.
Key adjustments it made included raising the plant utilisation for Malaysian plants to 88% from 70% previously, increasing the FY22 trading volume assumptions by 20%, and lowering the FY22 effective tax rate to 21% compared to 23% previously.
“As a result, our FY22-FY23 earnings are raised by 27%-50%,” it said.
Following the upgrade in its forecast, TA has also upgraded its recommendation on the stock to a “buy” from a “sell” previously, with a higher target price of RM0.64 based on unchanged 10 times 2022 price earnings ratio.
“Our optimism reflects expectations of earnings upside on the back of robust crude oil prices. This is anticipated to boost the development pace of greenfield oil and gas upstream projects. In turn, this translates to higher demand for Pantech’s products,” the research house said.
In a report back in April, TA had noted that Pantech would only benefit at a later stage in the revival of offshore capex given that it is a subcontractor and supplier to engineering, procurement, construction and commissioning contractors.
However, management has cautioned that margins may be crimped, given expectations of a strong British pound as the company has a manufacturing operation in the United Kingdom.
On the other hand, the plants in Malaysia had shut down for a duration of only two weeks during the enhanced movement control order in Q2 of FY22. Operations have been allowed to resume.