Pantech - long term outlook remain bright

Its stock price come under selling pressure after its earnings results for the third quarter ended Nov 30 of financial year 2014 were below market expectations.

Nevertheless, its longer term outlook remain bright. Its valuations are still attractive relative to the oil and gas sector as well as the broader market. The stock is now (27 Jan 2014) trading at a PER of 9.4 times and 8.2 times estimated earnings for FY2014 and FY2015 respectively.

With no major capex in the plans – barring any new acquisition – expect gearing to gradually decline over the next few years from Jan 2014. Gearing had fallen to 29% at end 3FY2014, down 47% at end FY2013.

The lower turnover for that quarter was due to a sharp drop in manufacturing sales while trading sales remained weak. The lower turnover was attributed to anti dumping duties imposed by the US on stainless steel pipes which came into effect in Oct 2013.

As a result of the hefty tax, Pantech has stopped shipping to the country, one of its major customers. Estimate stainless steel pipes to the US account for up to a quarter of capacity previously.

Since then the company has shifted about half of the freed capacity to produce stainless steel fittings. On a more positive note, with the loss of the stainless steel pipe sales, higher value added products – accounted for a higher percentage of total manufacturing sales.

Petronas is expected to spend over rm300 billion on capex between 2011 and 2015 which should underpin demand for Pantech’s pipes, fittings, and flow control products.

The acquisition of Nautic Steels-is helping open doors in new markets.

As a result of the US setback, the stainless steel plant remains around break even level instead of making profits.