More growth ahead for Pantech after strong earnings

by **hlk** Fri 26 Apr 2013, 10:10

KUALA LUMPUR: RHB Research
sees more upside for Pantech after it posted a strong set of results
for the financial year ended Feb 28, 2013 (FY end-Feb 2013), prompting
it to keep a Buy recommendation with fair value of RM1.
It said
Pantech's RM55mil net profit for FY13, (up 59.4% on-year) were largely
in line with its RM53.7mil forecast but slightly below consensus'
estimate of RM57.0mil.
“Earnings fell 19.2% on-quarter but we
deem this as normal given that sales are typically slower in the fourth
quarter due to the many festivities.
“The trading division
recorded stronger sales of RM384.1mil (up 25% on-year) and profit before
tax of RM59.8mil (up 39% on-year), mainly buoyed by robust demand from
oil and gas companies with their ongoing projects,” it said.
RHB Research said margins from the division improved due to more efficient cost controls.
It
noted that the manufacturing division's sales and profit before tax
soared by 100% on-year and 247% on-year respectively, fuelled by strong
contribution from Nautic Steel and a better product mix at its carbon
steel manufacturing segment.
“We are confident that Pantech's
outlook remains bright as we understand that management has been
actively securing new contracts to improve the company's earnings
profile.
“We do not discount the possibility of Pantech looking
for new M&A targets to duplicate Nautic Steel's success. Management
indicated it has plans to boost Nautic Steel's production capacity,” it
said.
RHB Research said it also learned that its stainless steel
plant, which had weighed down the group's performance in the past,
finally broke even. Hence, we expect positive contribution from this
segment moving forward,” it said.
“As we are bullish on the
counter, we maintain our Buy recommendation and RM1 fair value, pegged
to 9.0 times FY14 forecast diluted earnings per share, assuming all its
shareholders convert their irredeemable convertible unsecured loan
stocks (ICULS) before the 2017 expiry date,” said the research house.