Pantech 9M19 net profit saw a flattish improvement of one per cent y-o-y on the back of better trading segment due to increased demand, mitigating deteriorated manufacturing segment due to the aforementioned US shipment suspensions. — Reuters photo
KUCHING: Analysts attribute Pantech Group Holdings Bhd’s (Pantech) higher-than-expected results in its nine months of financial year 2019 (9M19) to an over-estimation of negative impact from suspension of shipments to the US.
The group revealed its net profit for 9M19 of RM36.2 million came in above expectations, accounting for 85 per cent of Kenanga Investment Bank Bhd’s research firm (Kenanga Research), and 88 per cent of consensus, full-year earnings forecasts.
“We believe this was because of an over-estimation of the negative impact from its suspension of shipments of carbon steel butt-weld fittings to the US following a preliminary affirmative anti-circumvention determination issued by the US Department of Commerce (DOC) in July 2018,” it said in a note.
The company had also announced treasury share dividend on the basis of one share for every 100 existing shares. This brings its dividends to date to around 0.95 sen, which Kenanga Research said was in line with expectations.
Cumulatively, 9M19 net profit saw a flattish improvement of one per cent year on year (y-o-y) on the back of better trading segment due to increased demand, mitigating deteriorated manufacturing segment due to the aforementioned US shipment suspensions.
For the individual quarter of 3Q19, net profit of RM11.2 million came in higher by 11 per cent y-o-y, thanks to jump in trading segment coupled with improvement in trading margins by +3ppts, offsetting 47 per cent plunge in its manufacturing segment due to the aforementioned US shipment suspensions.
Sequentially, 3Q19 net profit recorded a mild three per cent increase quarter on quarter (q-o-q) largely thanks to the favourable effective tax rate. On the profit before tax (PBT) level, results were actually lower by six per cent, dragged by both trading and manufacturing segments.
“Earlier, we anticipated a final decision from the DOC regarding its anti-circumvention determination to be reached by February 2019,” Kenanga Research highlighted. “ However, with the US government now in shutdown, this may have thrown the timeline into uncertainty.
“With no clarity as to when will this overhang will pass, we opted to trim our FY20E earnings by eight per cent, accounting for full-year loss of butt-weld fittings to the United States. However, our FY19E earning is raised by five per centon the back of the better-than-expected results.
“Given the uncertainty of the DOC issue, we have opted to conservatively price the stock at its floor valuations of 0.6 times its price to book value (PBV), arriving at a target price of RM0.46 per share.
“We feel compelled to downgrade our call as we see a lack of re-rating catalyst, especially the uncertainty regarding the shipment-to-US issue, versus our previous expectations of a conclusion by February this year.
“With that said, however, should we see a positive outcome, we may look to re-rate its valuations back to 0.7 to 0.8 times its PBV.”