PANTECH: Strong Manufacturing Output and Automation Drive Positive Outlook

The company’s manufacturing operations are demonstrating robust performance, driven by high utilization levels and strong export demand. This resilience is providing a crucial cushion against softer activity observed in its trading segment. The positive momentum is further bolstered by strategic investments in automation, which are effectively mitigating rising production costs and enhancing overall efficiency.

Operational Highlights and Efficiency Gains

The Klang manufacturing plant is currently operating at a high 90% utilization rate, attributed to sustained resilient export demand across key markets. This strong manufacturing performance is instrumental in offsetting the temporary headwinds faced by the trading segment, which is experiencing softer domestic activity.

A key focus for the company has been the implementation of smart manufacturing enhancements. These initiatives include the commissioning of two advanced laser piping and plate cutting machines, each capable of replacing three conventional non-laser units. This technological shift has led to significant operational benefits, including reduced operator headcount requirements, improved processing speeds, minimized material wastage, and lower production rejection rates. Furthermore, a new stainless steel pickling line at the Johor plant is in the design phase, projected to drastically reduce labor reliance from 35 to just 5 workers. These advancements are crucial in managing cost pressures, such as minimum wage increases and mandatory EPF contributions, thereby strengthening competitiveness in export markets.

Market Dynamics and Future Outlook

Despite increased tariffs on steel articles under the US Trade Expansion Act, demand from US customers remains stable, underpinned by consistent orders from data centre, infrastructure, and industrial segments. In Europe, the company maintains a competitive edge due to more favorable anti-dumping duties compared to Chinese producers.

The company is also actively pursuing geographical diversification, with Brazil identified as a compelling new market opportunity following the imposition of anti-dumping duties on Chinese steel imports. This strategic move is expected to deepen the company’s presence internationally and support long-term expansion ambitions. Overall, earnings are projected to grow by 3-12% over 2026-28E, with FY26E earnings specifically forecast to increase by 12% year-on-year, driven by growth in both manufacturing and trading segments as market conditions recover.

Investment Recommendation

The investment bank maintains a BUY rating with an unchanged 12-month target price of RM0.89. The valuation, based on an 8x PE multiple on FY26E EPS, is considered attractive at 6x forward FY26E PE, complemented by a strong 9% dividend yield. The positive outlook is underpinned by continued investments in automation for operational efficiency, margin expansion, and ongoing capacity additions designed to capture rising global export demand. Strong operating cash flow and a healthy net cash position are expected to sustain the attractive dividend payout.

Key risks to this positive outlook include lower-than-expected demand for Pipe, Valve, and Fitting (PVF) products, prolonged project delays, and higher-than-expected operating costs.