Pantech looks beyond FY2015

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PANTECH GROUP HOLDINGS BHD is likely to be a beneficiary of Petroliam Nasional Bhd’s (Petronas) US$27 billion (RM88.5 billion) Pengerang Integrated Complex (PIC). It is providing pipes, valves and fittings (PVF) to the development project.

But will there be more jobs for Pantech after PIC?

The group’s executive director Adrian Tan tells The Edge in an interview that once the construction of PIC’s facilities are completed, Pantech will look forward to providing maintenance of the complexes, which will provide recurring income to the oil and gas group.

At present, 40% of the group’s business is from the maintenance and replacement market of PVFs. Maintenance jobs from PIC — commencing 2020 — should add to Pantec’s bottomline.

“It is something that we think is within our reach … We are working very hard towards it,” says Tan.

These maintenance jobs, if they transpire, would result in earnings over and above the supply contracts that the group would be able to win over the next five years.

A report from Alliance DBS Vickers explains that if 5% of the RM87 billion project is for PVF and if Pantech secures 2% of that, this would translate into RM1.7 billion in supply contracts for PIC. The remaining 3% would be outsourced from overseas by the engineering, procurement, construction and commissioning (EPCC) contractors.

It is interesting to note that in its recent financial report on Bursa Malaysia, Pantech states that the group has managed to secure its first supply package for Rapid (refinery and petrochemical integrated development) for an undisclosed client and amount. Its impact on the company’s financials remains to be seen.

Pantech registered net profits of RM26.98 million for first half of FY2015 from RM29.06 million previously. Revenue came in lower at RM272 million against RM316.08 million a year ago.

In contrast to the corresponding period a year ago, net profits were down about 7% while revenue dipped almost 14%.

In a report by RHB Research, Jerry Lee says that Pantech’s outlook remains bright for the longer term.

“With its improved margin, we are confident that its earnings could rise to new highs once oil and gas activities begin to pick up again,” says Lee.

The research house has a “buy” call on Pantech with a target price of RM1.25 based on a 12 times FY15 forecast price-earnings ratio (PER) of 9.3 times.

Kenanga Research, on the other hand, which has an “outperform” call on the stock with a target price of RM1.23, notes that the sector has undergone some de-rating with low crude oil prices and sluggishness in the global economy.

“However, we believe Pantech is well positioned in the downstream segment, which will continue to shine in the medium-term as Petronas goes all out to ensure the success of the Rapid project,” says Kenanga.

While its prospects at PIC seem bright, Tan adds that Pantech will not be overly dependent on Rapid.

He says that in the five years till the commencement of the Rapid contracts, there would be new opportunities and projects for Pantech to take part in.

“It’s not like we are just harping on PIC or Rapid,” says Tan.

Without disclosing details, Tan adds that the group is also able to provide its high-temperature products to power plants. In fact, Pantech has been supplying valves to Malakoff Corp Bhd.

Note that Malakoff is a 51%-owned subsidiary of MMC Corp Bhd, which was awarded the EPCC for PIC’s co-generation power plant through a tie up between its unit, MMC Engineering Services Sdn Bhd, and Siemens Malaysia.

Pantech’s trading division saw higher earnings during the period due to stronger sales demand and better contributions from its overseas subsidiary. Its manufacturing division saw lower earnings due to a decrease in output and export sales demand.

Tan says its trading division will see increased activity in the quarters to come, hinging on the development of Rapid. “Right now, everything is running on Rapid. I would say that Rapid could be reflected in the second half of the current financial year (2HFY2015)”.

On its manufacturing side, Tan says that the group is limited by capacity. “Different factories have different capacities. I would say that we are the biggest in Malaysia in terms of capacity,” he adds, pointing out that Pantech has a 40% market share in the country.

Pantech saw its shares priced at an all time high of RM1.11 on July 17 this year after jumping 30.29% from a one-year low of 85 sen on March 28. Its shares closed 13.26% lower at 97 sen last Friday, with a market capitalisation of RM579.5 million.

On the recent oil and gas industry slump, Tan is of the view that investors should take a long-term perspective.

“If you take a short-term view of oil and gas, you either make money very fast or lose money very fast,” he says.

This article first appeared in The Edge Malaysia Weekly, on October 27 - November 2, 2014.