PANTECH: Earnings Miss Prompts Target Price Downgrade Amid Margin Pressure

Investment bank TA SECURITIES has reported that the group’s nine-month core net profit for FY26 fell short of both internal expectations and consensus forecasts, representing only 62% of full-year estimates. The shortfall was primarily attributed to weaker-than-expected sales deliveries within the local oil and gas sector, compounded by unfavourable foreign exchange movements stemming from a weaker US Dollar. Consequently, the firm has downgraded its recommendation from Buy to Sell, revising its target price downwards to RM0.63 per share from a previous RM0.72.

Performance Review

On a year-on-year basis, the group’s 3QFY26 profit before tax (PBT) experienced a 21.0% decline. This was largely driven by a weaker earnings contribution from the Trading division and lower average selling prices in the Manufacturing division. Specifically, Trading EBIT decreased by 38.2% year-on-year, primarily due to reduced delivery volumes to both domestic oil & gas and other industrial segments. Meanwhile, Manufacturing EBIT saw a 12.7% year-on-year drop, pressured by softer stainless-steel average selling prices (ASPs) and a less favourable product mix.

However, a quarter-on-quarter analysis revealed a 14.0% increase in 3QFY26 PBT. This improvement was underpinned by a more favourable product mix and enhanced cost discipline, which helped to mitigate the impact of lower revenue across both the Trading and Manufacturing divisions.

Revised Forecasts

In light of the recent performance, TA SECURITIES has adjusted its earnings forecasts for FY26, FY27, and FY28 downwards by 13.1%, 14.5%, and 15.9% respectively. This revision incorporates a 1% reduction in the firm’s profit after tax (PAT) margin assumption, reflecting the ongoing softness in stainless-steel ASPs.

Future Outlook and Valuation

Despite the current challenges, earnings visibility is expected to remain supported by resilient global oil and gas capital expenditure, sustained energy demand, and continued reinvestment in brownfield assets. Spending momentum is anticipated from infrastructure upgrades, downstream capacity additions, routine maintenance, and decarbonisation initiatives. Management indicates a stronger first half of FY27, with production expected to ramp up as new upstream-driven projects commence.

Nevertheless, the downgrade to a “Sell” recommendation, with a revised target price of RM0.63 per share, reflects concerns over weak earnings delivery and potential earnings risk from a stronger Ringgit. The new target price is derived from a 7.0x CY26 EPS multiple, which applies a discount to the historical mean to reflect the industry downcycle, partially offset by a 3% ESG premium.