Fair Value : MYR 1.00
We continue to like Pantech as a niche steel player leveraging on the positive outlook for the O&G sector. Nautic Steel should remain the company’s main growth driver, while its stainless steel unit is poised to turn around in FY14. These should propel Pantech’s earnings higher. On incorporating the potential dilution from full conversion of its irredeemable convertible unsecured loan stocks (ICULS), we derive a new FV of RM1.00, pegged to a higher PER of 9x FY14F, vs 6x previously. Maintain BUY.
Capitalising on O&G boom. OSK remains upbeat on the O&G sector, which is expected to see heightening activities in 2013 amid stable oil prices. As a one-stop provider of pipes, fittings and flow controls (PFFs), Pantech is well-positioned to ride on this O&G boom. The company’s strength as an alternative player puts it in a sweet spot despite the headwinds facing the steel industry.
Growth nodes intact; 2H looks good. Pantech’s expansion plans for Nautic Steel are progressing well, while its loss-making stainless steel division is recovering and is expected to break even by end-FY13. Going into FY14, we expect to see Nautic Steel and its stainless steel division strengthen further. We think the company will continue to report good 2HFY13 earnings, in line with our forecasts. Furthermore, Pantech may offer investors a decent dividend yield of 6.6% for FY13, assuming a 40% payout ratio at the current share price of RM0.72.
Model under review, but still a BUY. We are reviewing our valuation model and adjusting the company’s share base, assuming that all its irredeemable convertible unsecured loan stock (ICULS) would have been converted into Pantech shares. However, we have yet to adjust for its warrants as these are long dated and out-of-the-money. As such, the stock’s EPS for FY14f will be diluted to 11.1 sen from 13.5 sen previously. We are now pegging Pantech’s valuation at 9x FY14f PE instead of 6x PE, after excluding the dilution impact from our valuation parameters. Hence, our new FV is RM1.00. Reiterate BUY.
Capitalising on O&G boom. OSK remains upbeat on the O&G sector, which is expected to see heightening activities in 2013 amid stable oil prices. As a one-stop provider of pipes, fittings and flow controls (PFFs), Pantech is well-positioned to ride on this O&G boom. The company’s strength as an alternative player puts it in a sweet spot despite the headwinds facing the steel industry.
Growth nodes intact; 2H looks good. Pantech’s expansion plans for Nautic Steel are progressing well, while its loss-making stainless steel division is recovering and is expected to break even by end-FY13. Going into FY14, we expect to see Nautic Steel and its stainless steel division strengthen further. We think the company will continue to report good 2HFY13 earnings, in line with our forecasts. Furthermore, Pantech may offer investors a decent dividend yield of 6.6% for FY13, assuming a 40% payout ratio at the current share price of RM0.72.
Model under review, but still a BUY. We are reviewing our valuation model and adjusting the company’s share base, assuming that all its irredeemable convertible unsecured loan stock (ICULS) would have been converted into Pantech shares. However, we have yet to adjust for its warrants as these are long dated and out-of-the-money. As such, the stock’s EPS for FY14f will be diluted to 11.1 sen from 13.5 sen previously. We are now pegging Pantech’s valuation at 9x FY14f PE instead of 6x PE, after excluding the dilution impact from our valuation parameters. Hence, our new FV is RM1.00. Reiterate BUY.
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