KUALA LUMPUR: Pantech Group Holdings Bhd, a one-stop provider of pipes, valves and fittings, is likely to post better earnings ahead supported by the positive outlook of the oil and gas sector and rising contributions from the palm oil industry.
Given that more than 50% of the group’s earnings is derived from the oil and gas sector, Mercury Securities Research said Pantech is in the right position to benefit from the capital expenditure (capex) cycle.
“Petronas’s increased annual capex allocations from 5% to 9% suggest a positive industry outlook, potentially adding tally to the group’s current order book of RM550mil,” the research house said in its initiation report on the company yesterday.
Meanwhile, it expects Pantech, which supplies oil pipes, valves and flanges to the palm oil industry, to secure more contracts from the palm oil industry moving forward.
“The company has more than 30,000 stock keeping units, and better positioned to meet rising customer demands,” noted the research house.
As such, Mercury Securities Research expects revenue contributions from the palm oil industry to hit 20% by financial year ending Feb 28, 2023 (FY23) from 16% in FY21.
The research house also pointed out that the group has an experienced management team.
It is currently managed by three key individuals, namely, its chairman and group managing director Datuk Chew Ting Leng, deputy managing director Datuk Goh Teoh Kean and executive director Adrian Tan.
That said, Mercury Securities Research is keeping a “buy” call on Pantech with a target price of RM0.72 based on FY23 forecast earnings per share of 6.9 sen and price-to-earnings ratio of 10.4 times in line with the five-years average.
This is on the premise of a two-year compound annual growth rate forward earnings of 37.8% and cheap valuations.
The key risks to its recommendations include fluctuation of steel prices, demand of steel products, labour shortage, and slower-than-expected contract flows.
Pantech has more than 500 customers and exports to a total of 69 countries worldwide where 60% of sales are derived domestically while 40% are from exports.