Thursday, July 4, 2013

Pantech Group Holdings - Potentially hit by US anti-dumping suits

Pantech Group Holdings (PANTECH) announced that there is a potential that its stainless steel pipes production from its wholly-owned subsidiary, Pantech Stainless & Alloy Industries Sdn Bhd (PSA), could be subjected to US antidumping suits from Oct-13.
In anticipation of such a risk: 1) the company is looking to contest the suits; 2) is actively looking to shift production to higher stainless steel fittings production (which is not subjected to such anti-dumping laws and have higher margins than stainless steel pipes); and 3) is actively exploring other potential export markets such as South America and European countries. 
Management has guided that around 30% of its current stainless steel production are exported to the US.
Comments    We are negatively surprised by the news, but pleased that the company has highlighted this issue to the public and investors. 
If PANTECH is unsuccessful in its defence it may not be able to export its stainless steel pipes to the US profitably from end-2013 onwards, as such it may not export the pipes to the US altogether.
For starters, our current FY14-15 estimates assume a production of 10.1k tonnes per annum. Assuming a worstcase scenario, and no pipes are exported to US post Oct-13, FY14-15 production will reduce by 10% (assuming that only 4 months of its production is impacted) and 30% respectively. This reduces our FY14-15 revenue by 1.7%-4.5% and leads to FY14-15 net profit estimates falling by 1.7-4.4% respectively.
Consequently, our CY14 target price also falls by 3.8% to RM1.14 (from RM1.18 currently).
Outlook   The company’s trading and manufacturing divisions will continue to be buoyed by: 1) its rising project flows from the oil and gas sector; and 2) contribution from new markets with its purchase of Nautic Steels.
Forecast   We are maintaining our earnings estimates for now given that in the worst-case scenario, the negative impact will only affect its FY14-15 net profits by 1.7-4.4% respectively. In addition, we are certain that the company will pursue other markets and produce more stainless steel fittings that could mitigate the impact of this US antidumping suit on its FY15 stainless steel division revenue.
Rating   Maintain OUTPERFORM
Valuation    Maintaining our target price of RM1.18 based on CY14 PER of 11x.
Our target PER is close to the +1.5 std. deviation level of 10.6x of its historical mean PER as we believe that the sector is in a boom cycle similar to that of 2007-2008. 
Risks   1) A downturn in the oil and gas sector which could impact the company’s prospects and 2) a significant  swings in raw material costs that could impact the  margins of its divisions
Source: Kenanga

No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...