by ANIS HAZIM / pic by TMR FILE

PANTECH Group Holdings Bhd is set to benefit from the oil and gas (O&G) capital expenditure (capex) cycle.

Mercury Securities Sdn Bhd recommends a ‘Buy’ on the counter after its analyst Ronnie Tan noted Pantech’s client Petroliam Nasional Bhd (Petronas) has increased annual capex allocations from 5% to 9% suggesting a positive industry outlook and potentially adding to Pantech’s current orderbook of RM550 million.

“With more than 50% of the group’s earnings derived from this sector, Pantech is in the right position to benefit from the capex cycle,” Tan wrote in a recent report on Pantech.

The analyst believes the oil pipes, valves and fittings (PVF) provider could secure more contracts from the oil palm industry moving forward.

“The company has more than 30,000 stock keeping units, better positioned to meet rising customer demands,” he said.

Pantech’s revenue contributions from the palm oil industry have increased from 7% in the financial year of 2017 (FY17) to 16% in FY21, and is expected to hit 20% by FY23.

Pantech now has more than 500 customers including Petronas, Royal Dutch Shell plc, Exxon Mobil Corp and exports to 69 countries. Some 60% of sales are derived domestically while 40% are from exports.

Tan noted that Pantech is currently managed by three key individuals who are responsible for the group’s success.

Its chairman and group MD Datuk Chew Ting Leng and deputy MD Datuk Goh Teoh Kean, both having more than 30 years of experience in the PVF solutions industry.

Together with its ED Adrian Tan, who is also MD for various subsidiaries namely, Pantech Steel Industries Sdn Bhd, Pantech Stainless and Alloy Industries Sdn Bhd and Nautic Steels Ltd, he said.

The broker has a ‘Buy’ recommendation on Pantech with a target price of 72 sen based on FY23F earnings per share of 6.9 sen and price-earnings of 10.4 times, in line with the five-year average on the premise of two-year compound annual growth rate forward earnings of 37.8%, and cheap valuations.

Tan said the key risks for Pantech include fluctuation of steel prices and demand for steel products, labour shortage, and slower-than-expected contract flows.