FY11 should see increased activities in the oil & gas services sector, judging from the flurry of contracts awarded by Petronas toward end-2009. Our target price includes a revised 4.2 sen DPS for FY11 (from 4 sen), and implies a 7x multiple against its calendarized 2010 EPS. We continue to value Pantech on a sum-of-parts basis, pegging the value of its businesses to its trading and manufacturing peers, which now trade at an average of 6.0x and 8.4x calendarized 2010 EPS respectively. We also introduce FY12 forecasts in this note. As a result, we bring down our call a notch to Hold (from Buy), with a lower 12-month target price of MYR1.00 (from MYR1.10). We cut our FY11 forecasts by 12%, to factor in potential delays to our original assumption of new orders given the lower than expected 2HFY10 revenue. Pantech should also ramp up its manufacturing operations following the lifting of antidumping duties on its products in August 2009. We expect a stronger showing in FY11, in line with an expected increase in oil & gas capital spending as the global economy recovers. While the drop in revenue is worrying, we believe investors should be looking ahead to FY11 given the rebound in oil prices and resumption in activity. Assuming half of the FY09 writedown (totaling MYR9.2 mln) was written back, 4QFY10 adjusted operating margin would have shrunk to 12%, not a surprise given the lower asset utilization. The lower sales revenue was offset by higher operating margins (at 19%), boosted by a partial writeback of inventory writedowns taken in FY09. The manufacturing division on the other hand recorded a 26% QoQ sales growth, albeit still some 40% off the peak in FY09. After contracting in 3QFY10, revenue from the trading division fell a further 55% YoY and 33% QoQ due to lower sales volume. Pantech also declared a final DPS of 1.2 sen, taking full-year DPS to 4.2 sen, better than our previous forecast of 4 sen. FY10 net profit of MYR50.4 mln was within our expectations. Pantech Group reported decent 4QFY10 (Feb) net profit of MYR10.3 mln (-3% YoY), despite a 52.4% YoY decline in revenue to MYR66.5 mln. The group is capable of providing a wide range of engineering and construction services, industrial building systems and concrete products to both the building and infrastructure segments of the construction industry. One of its competitive strengths is that it is well positioned to respond to opportunities that the construction industry in Malaysia and Singapore may present, in particular Iskandar Malaysia, where the group has a significant presence. IBT, which is principally involved in the provision of industrial building systems and trading of construction and building materials, was incorporated in Singapore in 2008 to capitalise on the growing building and construction market in Singapore. Its products range from ready-mixed concrete to pre-cast concrete products to meet the demand of infrastructure and building construction in the Malaysian and Singaporean markets. SPC commenced its business of manufacturing and supply of concrete products in 2002. KLSB has since 2003 expanded its construction services business to larger-scale building and infrastructure construction works including projects exceeding RM100 million each and heavy engineering works such as flyovers and interchanges. It also trades in construction and building materials. The group is an engineering and construction services provider specialising in infrastructure and building construction, construction management, the provision of industrial building systems and manufacturing of concrete products. Kimlun is principally an investment holding company with three proposed wholly owned subsidiaries namely, Kimlun Sdn Bhd (KLSB), SPC Industries Sdn Bhd (SPC) and I-Buildtech Solutions Pte Ltd (IBT).
The listing exercise will involve a public issue of 64 million new ordinary shares and an offer for sale of 11.3 million ordinary shares of 50 sen each.
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