source: [Stock Market Talk]
Good news on PANTECH
The following article is a bit long but worth reading, you will like Pantech more after reading it.
Pantech to benefit from higher oil & gas spending
- by Insider Asia
Despite weakness in Pantech Group Holdings Bhd’s latest earnings results for the third quarter of its financial year ending February 2011, we remain sanguine on the company’s longer- term prospects — on expectations of increased contracts flow in the oil and gas (O&G) sector to downstream support industries.
Pantech is one of the largest one-stop centres for pipes, fittings and flow control (PFF) products in the country — providing customers a complete solution for the transmission of fluids and gases from point A to point B.
Its products have wide applications across industries — used for pipelines, refineries, processing plants and marine vessels in the O&G sector as well as in gas reticulation, marine, onshore and offshore heavy engineering and fabrication services. The company also caters to customers in the power generation, petrochemical, chemical, oleo chemical, water and palm oil refining industries.
Sales in FY10—FY11 affected by demand slowdown emand for the company’s PFF products was affected by the global financial crisis over the past two years. Sales hit a trough in 4QFY10 at RM66.5 million, well off its peak of RM139.4 million in the previous corresponding quarter — on the back of slower demand both in the domestic and export markets. As a result, sales for FY10 were down by 21% to RM402 million.
Whilst demand rebounded somewhat in 1HFY11, the recovery has been weak. Domestic demand, in particular, remained lacklustre due to the lagging effect from the slowdown in contracts flow during the crisis period.
Whilst the company saw resilient demand from the palm oil refining sector, it was insufficient to offset the slowdown in the O&G sector, which accounts for roughly 70% of Pantech’s business.
Although outlook for the O&G sector has strengthened considerably in recent weeks and is now expected to register robust growth over the next few years, spurred by the government’s Economic Transformation Programme (ETP), contracts awarded by key players including national oil company Petronas have yet to filter through.
Sales for Pantech’s trading division fell again in its latest 3QFY11 results.
Although the manufacturing division has been registering strong recovery — primarily from overseas markets, including to the US and the Middle East — it has not been able to fully offset the drop in domestic sales. In fact, utilisation at its manufacturing facility is almost back to optimal levels but the weak US dollar is weighing on sales translated back into the local currency.
As a result, overall sales were still 22% lower at RM262.9 million in 9MFY11 while net profit declined to RM23.9 million, down from the RM40.1 million in 9MFY10.
We do not foresee any material improvement in the company’s sales and earnings in the final quarter of FY11. This is after taking into account the fewer working days during this period with the Christmas, New Year and Lunar New Year breaks.
As such, we estimate sales to fall by another 16% to about RM336 million in FY11, while net profit is expected to drop to RM30.7 million, down 39%. Even excluding the one-off gains in FY10, normalised net profit in FY11 is still estimated to fall by about 34%.
Positively, we expect demand for the company’s PFF products to strengthen from hereon, especially going in 2HCY11 and over the next few years. In addition to volume increase, global steel prices too have been trending higher in recent weeks, which would further bolster sales and margins.
Robust outlook for O&G sector
Outlook for the domestic O&G sector, Pantech’s single biggest customer group, is robust. The Malaysian government has pinpointed the sector as one of the key focus areas under its ETP.
Last month, the government unveiled another 19 entry point projects under the ETP worth RM67 billion, including some RM15 billion to be invested by ExxonMobil and Shell to upgrade their existing fields and facilities as well as a RM5 billion deepwater petroleum terminal project in Johor.
Some of the other notable projects previously mentioned for the O&G and energy sector include the liquefied natural gas regasification plant in Melaka and two coal-fired power plants in the peninsula.
In addition to the expected increase in exploration and development of new deepwater projects, Petronas is planning to implement an enhanced oil recovery programme to extract more from its existing oilfields.
The national oil company also intends to open the market for the development of marginal oilfields to encourage greater participation from local companies working with technological know-how from foreign players. Earlier this month, the very first contract for the development of a marginal oilfield in Berantai, located offshore Trengganu, was awarded to two local players in partnership with foreign technology provider, Petrofac Energy Developments.
The aim is to sustain the level of O&G production in the country. To this end, various tax incentives were also announced late last year to spur capital investments, including accelerated capital allowances, investment tax allowances and lower tax rates for eligible projects.
The increased capital spending will, in turn, drive growth in supporting industries such as that for pipes, fittings and flow control products manufactured and distributed by Pantech. Over the years, its clientele list has included local players such as MMHE, Ramunia, Kencana Petroleum, Dialog Group, KNM and Gas Malaysia.
In our next piece, we will discuss further on Pantech’s operations and expansion plans as well as its valuations.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
Pantech to benefit from higher oil & gas spending
- by Insider Asia
Despite weakness in Pantech Group Holdings Bhd’s latest earnings results for the third quarter of its financial year ending February 2011, we remain sanguine on the company’s longer- term prospects — on expectations of increased contracts flow in the oil and gas (O&G) sector to downstream support industries.
Pantech is one of the largest one-stop centres for pipes, fittings and flow control (PFF) products in the country — providing customers a complete solution for the transmission of fluids and gases from point A to point B.
Its products have wide applications across industries — used for pipelines, refineries, processing plants and marine vessels in the O&G sector as well as in gas reticulation, marine, onshore and offshore heavy engineering and fabrication services. The company also caters to customers in the power generation, petrochemical, chemical, oleo chemical, water and palm oil refining industries.
Sales in FY10—FY11 affected by demand slowdown emand for the company’s PFF products was affected by the global financial crisis over the past two years. Sales hit a trough in 4QFY10 at RM66.5 million, well off its peak of RM139.4 million in the previous corresponding quarter — on the back of slower demand both in the domestic and export markets. As a result, sales for FY10 were down by 21% to RM402 million.
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Whilst the company saw resilient demand from the palm oil refining sector, it was insufficient to offset the slowdown in the O&G sector, which accounts for roughly 70% of Pantech’s business.
Although outlook for the O&G sector has strengthened considerably in recent weeks and is now expected to register robust growth over the next few years, spurred by the government’s Economic Transformation Programme (ETP), contracts awarded by key players including national oil company Petronas have yet to filter through.
Sales for Pantech’s trading division fell again in its latest 3QFY11 results.
Although the manufacturing division has been registering strong recovery — primarily from overseas markets, including to the US and the Middle East — it has not been able to fully offset the drop in domestic sales. In fact, utilisation at its manufacturing facility is almost back to optimal levels but the weak US dollar is weighing on sales translated back into the local currency.
As a result, overall sales were still 22% lower at RM262.9 million in 9MFY11 while net profit declined to RM23.9 million, down from the RM40.1 million in 9MFY10.
We do not foresee any material improvement in the company’s sales and earnings in the final quarter of FY11. This is after taking into account the fewer working days during this period with the Christmas, New Year and Lunar New Year breaks.
As such, we estimate sales to fall by another 16% to about RM336 million in FY11, while net profit is expected to drop to RM30.7 million, down 39%. Even excluding the one-off gains in FY10, normalised net profit in FY11 is still estimated to fall by about 34%.
Positively, we expect demand for the company’s PFF products to strengthen from hereon, especially going in 2HCY11 and over the next few years. In addition to volume increase, global steel prices too have been trending higher in recent weeks, which would further bolster sales and margins.
Robust outlook for O&G sector
Outlook for the domestic O&G sector, Pantech’s single biggest customer group, is robust. The Malaysian government has pinpointed the sector as one of the key focus areas under its ETP.
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Some of the other notable projects previously mentioned for the O&G and energy sector include the liquefied natural gas regasification plant in Melaka and two coal-fired power plants in the peninsula.
In addition to the expected increase in exploration and development of new deepwater projects, Petronas is planning to implement an enhanced oil recovery programme to extract more from its existing oilfields.
The national oil company also intends to open the market for the development of marginal oilfields to encourage greater participation from local companies working with technological know-how from foreign players. Earlier this month, the very first contract for the development of a marginal oilfield in Berantai, located offshore Trengganu, was awarded to two local players in partnership with foreign technology provider, Petrofac Energy Developments.
The aim is to sustain the level of O&G production in the country. To this end, various tax incentives were also announced late last year to spur capital investments, including accelerated capital allowances, investment tax allowances and lower tax rates for eligible projects.
The increased capital spending will, in turn, drive growth in supporting industries such as that for pipes, fittings and flow control products manufactured and distributed by Pantech. Over the years, its clientele list has included local players such as MMHE, Ramunia, Kencana Petroleum, Dialog Group, KNM and Gas Malaysia.
In our next piece, we will discuss further on Pantech’s operations and expansion plans as well as its valuations.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
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