PETALING JAYA: Pantech Group Holdings Bhd delivered a better showing in its financial results for the first half of 2022 (1H22), indicating the possibility of another record year in 2023 for the company.
It could also win more contracts from the palm oil industry on the back of strong palm oil prices. Mercury Research expects contributions from this segment to boost the company’s revenue by 20% in financial year 2023 (FY23), up 4% from FY21.
With more than 30,000 stock keeping units, Pantech is better positioned to meet rising customer demands. TA Research adds that based on Pantech’s management’s bullish tone, FY23 could potentially be another record year.
This is underpinned by a solid order book of RM400mil at the start of October that provides revenue visibility until January 2023.
Mercury said Pantech’s financial results were above expectations, achieving 70.4% and 75.3% of its full year revenue and profit forecasts for FY23 respectively, led by higher local oil and gas demand and robust export demand for carbon and stainless steels.
Mercury revised its FY23 and FY24 revenue and profit forecasts for Pantech upward by 3.8% to 27.5% and 1% to 26.2% respectively and maintained a “buy’’ call on the stock with a target price (TP) of 93 sen.
This is based on FY23 earnings per share of 9.9 sen and price-to-earnings ratio (PE) of 9.4-times, in line with the five-year average.
It likes the stock due to its attractive dividend yield and cheap valuations. The TP represents a potential return of 47.6% over the current price, Mercury noted.
TA Research said to reflect the actual 1H23 performance, its earnings estimates for Pantech’s FY23 to FY25 are higher by 7% to 23%. The research house tweaked its FY23 to FY25 forecast for the manufacturing segment since average selling prices have been raised by 9% to 15% for carbon and stainless steel products. It also raised earnings before interest and tax margins by 0.5% to 0.8% to account for leaner costs.
In spite of material price inflation, margins at Pantech’s manufacturing segment remain resilient underpinned by a full cost pass-through mechanism to clients.
However, to a limited extent, the group may incur inventory lag losses on excess raw material holdings. The latter typically amounts to 20% of required production volumes.
Following the upgrade in its forecasts, its TP for Pantech was raised to 97 sen from 88 sen based on unchanged 10-times forward PE.
TA Research maintained its “buy’’ call on the stock.