Removal of US exports suspension positive for Pantech

May 16, 2023

Photo shows an employee examining a Pantech's products. Analysts are positive on the removal of the suspension on shipments of Pantech's carbon steel butt-weld fittings to the US as it restores earnings visibility back to the company.

KUCHING: Analysts are positive on the removal of the suspension on shipments of Pantech Group Holdings Bhd's (Pantech) carbon steel butt-weld fittings to the US as it restores earnings visibility back to the company.

In an announcement on Bursa Malaysia, Pantech said the US Department of Commerce (DoC) issued a final affirmative determination concerning circumvention of antidumping duty (AD) order on carbon steel butt-weld pipe fittings from Malaysia. It noted that the DoC has verified Pantech's ability to trace country of origin of its shipments of its butt-weld pipe fitting and as such, it has lifted its suspension on Pantech's product exports to the US.

Pantech said, it would immediately commence shipments of its carbon steel butt-weld fittings to the US once again and this is expected to have a positive impact to the group's revenue going forward with contributions from Pantech Steel Industries Sdn Bhd (PSI) expected to normalise by the third quarter of the financial year 2020 (3QFY20).

"We are extremely positive on this announcement, as it once again restores earnings visibility back to the company," said the research team at Kenanga Investment Bank Bhd (Kenanga Research). The announcement also potentially implies that Pantech employs good business practices and that the DoC had found no evidence of export circumvention," it added.

Nonetheless, it said it retained its FY20 and FY21 estimated numbers unchanged as it deemed the announcement falls broadly within its base-case assumption of the shipment suspension uplift to be materialised before the second half of FY20 (2HFY20).

"That said, expect 2H numbers to be stronger, with 3QFY20 serving as the first full quarter to benefit from the restored US shipments," said Kenanga Research.

Aside from that, the research team believed that Pantech could also possibly benefit from a higher local oil and gas upstream capital expenditure (capex) environment.

"Pantech provides pipes, valves and fittings not only used for the transportation of oil and gas, but also for the engineering and construction phases of offshore fields (such as used as topside structures or jackets), with it being the only locally-owned pipe supplying company under the ‘Petronas Framework Agreement’," it added.

All in, Kenanga Research maintained its ‘outperform’ call on the stock.

It said: "We continue to like Pantech, especially with the US shipment suspension overhang now finally lifted given the restoration of its earnings visibility. Further upside to our numbers could still come from strong US early sales in 2QFY20, which we have still yet to impute into our assumptions."