Friday 26 July 2013

Pantech: Manufacturing Beats Trading

Pantech just released its FY14Q1 results (ended 31 May 2013) 2 days ago. There is no major surprise in its top and bottom lines, but the results are mainly within expectation.

Both revenue and net profit grow 12% and 10% respectively YoY, and 4% and 9% QoQ. It looks like a good result but surprisingly most investors do not seem to view it positively. Pantech's share price drops after the announcement.

If you look into the business segments of Pantech, you will find something interesting. For the first time, its revenue and profit from manufacturing division are more than the trading division. In FY2012, trading division still contributes 71% of the total revenue.

For FY13Q4 ended Feb 2013, Pantech's revenue and net profit from its trading arm is RM90.7mil & RM65.5mil, while its net profit stands at RM12.4mil & RM7.6mil respectively. For the following quarter FY14Q1 ended May 2013, revenue from trading drops 11% to RM85.3mil, while its net profit drops 28% to RM8.9mil.

For its manufacturing arm during the same period, the revenue rises 40% to RM91.6mil and net profit rises even more at 66% to RM12.6mil. Both figures have beaten trading arm convincingly.

What do all these mean?

The significant reduction of its trading business throughout FY2013 may be a worrying part, but I think the uncertainty of general election may make up a big part of the reason, especially during the Mac-May 2013 period when the election day is confirmed. The slow down in trading business is mainly due to lower demand (GE13?) and some margin pressure.

In contrary, Pantech's manufacturing arm has achieved an unexpected  jump in its business due to higher demand. I think the election issue may not affect its manufacturing division much as most of the products are exported???

After the election cloud has cleared, I predict that Pantech may play catch up in its trading business as many new projects are being awarded by the government in the O&G field, while its manufacturing business may continue to grow.

Of course this is only my assumption and it could be totally wrong. If it is true, Pantech may produce a positive surprise in the subsequent quarterly result.

At the same time Pantech also announced "double interim dividend" for FY13 & FY14 with 1.2sen each. This makes the total dividend 4.6sen for the FY2013, which represents an at least 6.6% yield at share price of 70sen (Pantech share price is between 50-70sen during FY2013). 

The 1.2sen for its first interim dividend in FY2014 is 20% more than the previous correspondent period. If this trend continues, Pantech may pay up to 5.5sen for FY2014, which translates into 5% yield at the share price of RM1.08. This is not bad for a growing company.

O&G industry is currently quite hot. How much will the impending termination of QE affect it?

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