This article first appeared in The Edge Financial Daily on October 26, 2018
Pantech Group Holdings Bhd
(Oct 25, 45.5 sen)
Maintain buy with a lower target price of 63 sen: Pantech Group Holdings Bhd’s second quarter of financial year ending 2019 (2QFY19) profit after tax declined 1.3% year-on-year (y-o-y) to RM10.9 million amid lower revenue as quarterly revenue decreased 6% y-o-y to RM148.1 million.
Revenue from the trading division rose 14% y-o-y to RM95.6 million while sales from the manufacturing division declined 28% y-o-y to RM52.5 million due to suspension of export of carbon steel butt welded fittings to the US following a 183% anti-dumping tax imposed on Pantech.
2QFY19 net earnings fell 23% quarter-on-quarter (q-o-q) on the back of a 17% q-o-q decline in revenue. Trading revenue dropped 7% q-o-q while manufacturing revenue fell 30% q-o-q.
Despite lower sales in the quarter, 1HFY19 net profit added 3% y-o-y to RM25 million on the back of a 5.8% revenue growth to RM326.4 million.
Operating margin increased to 11.9% from 10.8% in 1QFY19. Similarly, net margin was higher at 7.3% from 7% in the previous quarter despite higher tax rate of 27% versus 24% in 1QFY19.
Pantech has declared an interim dividend of 0.5 sen. We expect full-year dividend of 2.5 sen which translates into a yield of 5%.
Six months’ net profit of RM25 million achieved 48% of our full-year estimate of RM52.6 million while revenue accounted for 50% of our FY19 expectations.
Despite its results meeting our forecast, we are cautious of its 2HFY19 performance. As such, we are lowering our revenue and earnings per share (EPS) forecasts by 22% and 24% for FY19 and 13% and 13% for FY20 respectively to account for the impact of suspension of export of carbon steel products to the US.
Maintain “buy” call with a lower target price of 63 sen (from 84 sen). Our target price is based on FY19 EPS forecast and lower price-earnings ratio (PER) of 12 times with a +1 standard deviation over its 3-year mean PER.
The management is using legal means to contest the US Department of Commerce’s decision to impose the anti-dumping tax. Pantech could enjoy a favourable outcome if the decision is reversed. — JF Apex Securities, Oct 25