Thursday, July 4, 2013

Pantech - Buy 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.
Source: RHB

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