PANTECH ... Aug09

PANTECH GROUP's 1QE May 2009 Revenue of RM123.9m, down 11% QoQ but up 9.3% YoY showed signs of resilience according to INSIDER ASIA - a research house - which was reported on Aug 5, 2009 in THEEDGEDAILY.COM.

The research house said that " .... We expect sales and earnings to contract slightly for the full year, after adjusting for 'abnormally high' steel prices, demand and margins in 2008. Sales and Net Profit are estimated to decline 4% and 10% to roughly RM490.3m and RM53.8m, respectively in FY10 .... However, we are sanguine on PANTECH's growth prospects beyond the current adjustment period. The Company is enjoying continued stream of orders from customers and demand should gradually strengthen over the coming months. Sales are forecast to resume growth, by about 15%-17%, in FY11-FY12 ....".

POTENTIAL CAPITAL GAINS
INSIDER ASIA said that based on the potential revenue and profit growth, the stock was trading on attractive valuations in early Aug 2009. PANTECH's shares were then priced at only 5.9 and 5.0 times INSIDERASIA's estimated earnings for FY10-FY11, respectively.

TRADING BELOW O&G INDUSTRY PE AVERAGES
INSIDER ASIA also said that the shares of the Company were in early Aug 2009 trading well below the average PE (P/E) ratios for the oil & gas industry ? estimated at about 10 times ? as well as the broader market, which is currently priced above 15 times forward earnings.

Dividend Yields were also estimated by the research unit at 2.5 sen per share for the current financial year, which translate into a net yield of 2.9%.

INVENTORY LOWER
PANTECH has also been unwinding some of its own inventory. Stocks were lower at RM174.9m at end-May 2009, down from RM202.7m at end-Feb 2009. As a result, the Company's gearing improved to 55% compared to 64% over the same period.

CRUDE OIL PRICE TO HOVER BETWEEN USD50 TO USD70 PER BARREL
INSIDER ASIA said that market concensus suggests crude oil will trade between USD50 and USD70 per barrel in the near to medium term ? and likely to head higher going forward as the global economic recovery gains traction. The long-term outlook for oil remains unequivocally bullish according to the research house.

Currently, crude oil at around USD70 per barrel is above the breakeven levels for most projects, including deepwater projects. Hence, we should see strong support for continued exploration and production activities in the sector.

ORDER BOOK OF RM150M TO LAST 3 MONTHS
PANTECH continues to receive good flow of orders. The Company typically maintains a running order book of around RM150m, which will keep it busy for at least the next three months.

The Company's business is premised upon its position as the largest one-stop centre for PFF (pipes, fittings and flow control products) solutions in the country. The Company carries in excess of 20,000 inventory items, thus providing customers timely and comprehensive solution for the transmission of all fluids and gases. Each and every one of the Company's products carries proper certification, to meet the high benchmark standards for safety and quality required of the oil & gas industry.

REPEAT ORDERS
Repeat orders for regular maintenance undertaken by its existing customers provide a steady stream of business and account for up to 40% of PANTECH's annual sales.

EXPANSION
The Company recently acquired two pieces of land ? adjacent to its current manufacturing facility in Selangor and office in Johor ? for future expansion purposes. PANTECH plans to focus on niche market segments for customised products that carry higher profit margins.

Related:-
Pantech Group ... Sept 2008