Friday, 5 July 2013

Pantech: Riding On O&G

Pantech Group was initially a trading company established in the 1980s which trades steel related pipes, fittings & flow control parts. It started its manufacturing activity by producing its own steel-related products since year 2000.

Trading has been Pantech's major revenue contributor until today. In 2008, about 80% of Pantech's sales are from trading more than 22,000 items which made up of pipes, fittings & flow control solution (PFF). However for the past 5 years, the management has expanded its manufacturing arm quite successfully. Now the sales from trading : manufacturing has been narrowed to 60:40.

Since 2008, besides increasing the capacity of its existing factory in Klang which produce carbon steel, Pantech has set up new factory in Pasir Gudang for stainless steel production. In March 2012, Pantech successfully acquired 100% of Nautic Group in UK, which produces Copper Nickel, Nickel Alloy & niche products in oil & gas industry.

In the latest FY2013 which ended in Feb 2013, Pantech's revenue has increased 47% from RM434mil to RM637mil, while its net profit surged 61% from RM34mil to RM55mil. This is largely contributed by robust growth in the oil & gas industry worldwide, as 80% of Pantech's revenue comes from O&G field.

Its recently acquired Nautic Group is expected to contribute only about RM50mil revenue & RM5mil net profit to the group at initial stage, while its stainless steel factory has just break even in this FY (it reported a loss of RM7.5mil in FY2012).

The production facility of Carbon steel in Klang has achieved a max of 18,000MT/annum and is 100% utilized. Its Pasir Gudang plant (14,400MT/annum) and UK plant are also 90% utilized. Nevertheless, Pasir Gudang's plant is running at 12-hour shift a day and still has room to increase its capacity. Pantech is also buying a factory nearby its current UK facility to expand its production and warehouse.       

Though the potential increase in manufacturing output is not very huge, especially with the slow down in stainless steel products order because of high nickel price, Pantech is still tipped to continue its growth amid the robust activity in oil and gas industry.

Petronas will allocate RM300bil in O&G capex within 2011-2015. Globally, Pantech has gained priceless network connection through the acquisition of Nautic Group. It has further its reach to Europe, Middle East, North & South America especially Saudi & Brazil where the O&G sector is hot.

Recently Pantech announced that US has voted to continue with the anti-dumping suit on welded stainless steel pipes from Malaysia, Thailand and Vietnam. However, the negative effect is largely neglected as it will only contribute to 3% of total revenue in FY2014. Pantech said that it will increase the production of stainless steel fitting by 3x to offset the fall in stainless steel pipes.

Though the future growth rate may slow down (compared to FY2012-13) due to its almost fully utilized manufacturing capacity, the trading arm may still continue to grow due to high demand in O&G sector.

       PFF solution

Due to its recent expansion and acquisition, Pantech has accumulated debt to RM250mil while its cash drops to RM79mil. The net debt/equity ratio stands as 0.45 which is still within the acceptable range. It still manage to pay out 40-45% of its earning as dividend for the past 2 financial years.

Pantech can now starts to enjoy the fruit from its Pasir Gudang & UK plants. Its management plans to grow its revenue to RM1billion mark by year 2015. It may be difficult but not impossible to achieve as long as the global economy is slowly improving and the O&G sector continue to grow.

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