It said Pantech's quarter-on-quarter (q-o-q) net profits were higher, mainly attributed to better performance from its trading division, which chalked up strong growth of 33%.
"As the company is still enjoying a flow of orders from its customers, this should spur orders for its pipes. We have maintained our FY10 and FY11 forecasts and upgraded our target price as we ascribe a 20% premium over the fives times steel sector price-earnings ratio (PER) for its exposure to the oil and gas (O&G) industry on FY11 earnings per share," it said.
OSK Research said Pantech's 1QFY10 topline and bottomline were well in line with its expectation and street estimates, adding that the 1QFY10 revenue of RM123.9 million was 9.3% higher than that in the previous corresponding quarter.
"However, its net profit shrank 13.6% year-on-year (y-o-y) to RM13.6 million, mainly due to better margins and record high selling prices for steel products in the middle of last year. Stronger performance from its trading division drove q-o-q net profits higher by 54.7%," it said.
The research house said Pantech's manufacturing arm, which is geared towards the export market, experienced a 53% y-o-y plunge.
"We understand that Pantech may have experienced a slowdown in sales to the US, which make up 40% of the group's total exports. However, we believe the constant need for maintenance works will sustain this division."
"Demand for its trading division's pipes, fittings and flow control products (PFF) is still resilient as we saw a growth of 33% q-o-q. The company is still getting orders from its customers (mainly from local fabricators and palm oil plants), with some RM208 million orders in hand, which should keep the company busy for the next two quarters," it said.
Furthermore, as oil prices stabilise, our O&G analyst believes that the period from 2H09 to early 2010 would be an exciting one for O&G players, said OSK Research.
It said Pantech's involvement in submersible rigs for the Shell Gemusut Kakap deepwater project may spur demand for its pipes in the near future. Prices of seamless steel pipes have also held up better than other steel products such as hot and cold-rolled coils, it said.