Tuesday, October 29, 2013

Pantech - room to up dividend

Its longer term prospects remain bright. The company’s strategy to expand its operations overseas will translate into greater growth potential in the long run .It continues to explore possible mergers and acquisitions opportunities within the oil and gas sector.

In the shorter term, market observers are cautious on the outlook although still expect 2HFY2014 earnings to be stronger than that of the first half.

Sales in the domestic market have not picked up as quickly as anticipated with the conclusion of the GE in May 2013. For 1HFY2014, Pantech’s trading sales fell 19% from the previous corresponding period.

The government’s focus on reining in the budget deficit and public debt will result in prioritization and delays in certain projects. However the O&G sector remains a key focus area under the ETP. That should underpin demand for Pantech’s pipes, fittings and flow control products – even if growth is slower than initially forecast.

Near term outlook for manufacturing is also tempered by the US anti dumping suit filed against Malaysia, Vietnam and Thailand for stainless steel pipes. The higher taxes come into effect in Oct 2013.

Pantech is working to fill the void left by the US market by tapping new customers in other countries. Positively, economies in Europe appear to be on the recovery. The acquisition of Nautic – whose products are approved by many of the world’s oil majors – is helping open doors in these new markets. Pantech also intends to product more stainless steel fittings, which are not subjected to the anti dumping duties, for the US market.

Overall, Pantech remains upbeat on the manufacturing business. The company foresees that it will eventually contribute to at least 60% of total sales.

In terms of valuations, it is trading at PER of 9.3 times and 8.1 times estimated earnings for FY2014 and FY2015 respectively.

It has some 74.8 million warrants outstanding, with exercise price of 60 sen and a long expiry in Dec 2020. Even on a fully diluted basis, the stock is still modestly valued at roughly 10.5 and 9.1 times estimated earnings for FY2014 and FY2015 respectively.

There are currently (Oct 2013) no plans for any major expansion on the home front. Expect its gearing to gradually decline over the next three years from 2013. Gearing has fallen to 31% at end 2QFY2014.

Coupled with stronger earnings and cash flow, Pantech has room to up dividends.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.