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Thursday, July 4, 2013

Pantech - Buy On Share Price Weakness (RHB)

Fair Value : MYR 1.43

Pantech (PGHB) told Bursa Malaysia yesterday that the US Government may impose anti-dumping measures on welded stainless steel pipes from Malaysia, Vietnam and Thailand. We believe the impact to PGHB’s bottom-line will be muted as its stainless steel pipe division is small. If the market reacts negatively to this piece of news, we advise investors to BUY PGHB shares on any price weakness, with our MYR1.43 FV unchanged as the company’s growth pace remains intact.

A precautionary step. PGHB is exercising good corporate governance by warning its investors of the potential of such a negative outcome although the decision on the impending measures has yet to be made.

Minimal impact. We advise investors to stay calm as we believe that such a negative announcement may only make a minimal impact. From the announcement, it would seem that the company expects such curbs to have a less than 3% impact on its FY14F revenue. Although PGHB exports 30% of its 1k tonnes of stainless steel pipes to the US monthly, the impact is muted as stainless steel pipes make up under 10% of PGHB’s net profit. To mitigate the anticipated negative impact, PGHB has begun on a plan to increase the production of higher-margin stainless steel fittings by three-fold by the second half of FY14F. Nonetheless, as our forecast has not incorporated any contribution from its stainless steel division, we believe that the anticipated anti-dumping measures should not undermine our earnings estimates for PGHB.

Outlook remains bright. We believe PGHB’s outlook is still bright as its trading and carbon steel fittings manufacturing divisions are still stable. Its UK unit, Nautic Steel, is poised for stronger growth in FY14F as more capacity would be installed once the company acquires a new factory to widen its product range and in turn boost its profitability.

BUY on weakness, MYR1.43 FV. Should the market react negatively to the company’s announcement, we would advise investors to accumulate PGHB shares on price weakness as the company’s outlook is still robust. We maintain our BUY call on PGHB, with our FV unchanged at MYR1.43, pegged to a 13x FY14F P/E.

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