PANTECH Group Holdings Bhd is tipped to be one of the beneficiaries of Petroliam Nasional Bhd’s (Petronas) RM89 billion refinery and petrochemical integrated development (RAPID) in Pengerang, Johor, and has seen renewed interest in its shares, since Petronas gave the green light to the project in April.
The pipe manufacturer’s shares rose 16% over one month and another 4% over the week of May 19-25. The stock closed at RM1.01 on May 20 (Tuesday), putting the company’s market capitalisation at RM569 million.
“Based on our assumption that 5% of the RM89 billion project is for local pipe, valve and fitting players and assuming Pantech commands a 40% share of the domestic market, we think RAPID should help give its trading division additional revenue of RM300 million per annum, that is almost double what it achieved in FY2014,” RHB Research analyst, Jerry Lee, says in a May 19 note.
The company’s conventional warrants, Pantech-WA, have seen similar interest and risen in tandem with the underlying share.
At their close of 51.5 sen on May 20 (Tuesday), the warrants — which have a strike price of 60 sen and a conversion ratio of one to one — were trading at a 10.4% premium to the mother share. The free detachable warrants were issued as part of a rights issue in December 2010 and expire on Dec 21, 2020.
Pantech-WA’s long tenure, coupled with its low premium to the mother share, serves as a good proxy for the company’s growth.
Apart from the expected boost from RAPID, Pantech is also expanding via its subsidiary, Nautic Steels (Holdings) Ltd, to provide copper nickel fittings to Brazilian national oil giant, Petrobras. The company is also in the midst of establishing a business relationship with Indonesian national oil company, Pertamina, in Indonesia.
“The outcome of the tribunal on the anti-dumping duties imposed by the US government on stainless steel pipes from Malaysia, Thailand and Vietnam, should be known on July 1. Pantech ought to be able to ramp up its stainless steel production [for export] to the US, if the outcome is favourable,” says RHB Research’s Lee.
The research house has a “buy” call on the stock and a target price of RM1.25.
In its financial year 2014 ended February, Pantech posted a net profit of RM55.8 million, which was little changed from FY2013’s RM56.07 million. This was on the back of a decline in revenue to RM574.94 million, from 635.66 million previously.
Revenue was impacted by the trading division registering weaker sales demand from the oil and gas sector, while a fair value gain in the investment and management division helped net profit rise marginally.
According to Bloomberg, Pantech has a historical dividend yield of 1%. Its net asset value stood at 76 sen per share, as at Feb 28.
This story first appeared in The Edge weekly edition of May 26-Jun 01, 2014.
Written by Janice Melissa Thean of The Edge Malaysia
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