PANTECH: Company Posts Disappointing Earnings Amidst Weak Oil & Gas Demand
| Key Information | Details |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company recently reported its first-half FY26 core net profit, which significantly fell below both analyst and consensus estimates. The company recorded RM47.4 million, representing only 39% and 42% of full-year projections, respectively. This underperformance led to a proposed interim dividend of 2.0 sen per share.
Performance Review
The shortfall in earnings was primarily attributed to lower-than-expected sales deliveries within the domestic oil and gas sector, compounded by higher operating costs. This combination resulted in a 1.6 percentage point year-on-year contraction in the company’s operating margin.
On a year-on-year basis, the second quarter of FY26 saw a 22.4% decline in Profit Before Tax (PBT). This was largely due to weaker performances across both its Trading and Manufacturing divisions. The Trading division’s Earnings Before Interest and Tax (EBIT) decreased by 16.6% year-on-year, driven by reduced sales to domestic oil & gas and other industrial segments. Concurrently, the Manufacturing division’s EBIT contracted by 24.5% year-on-year, a result of softer stainless-steel Average Selling Prices (ASPs) and unfavourable foreign exchange movements.
Quarter-on-quarter, 2QFY26 PBT also saw an 8.1% decline, mirroring the factors observed in the yearly comparison, with both Trading (EBIT -11.0% QoQ) and Manufacturing (EBIT -0.2% QoQ) divisions contributing to the weaker performance.
Revised Outlook and Impact
In light of these results, the investment bank has revised its operating margin assumption for the Manufacturing division downwards by two percentage points and trimmed its Trading division revenue forecast. These adjustments reflect continued weak demand and lower sales deliveries in the domestic oil & gas segment. Consequently, earnings forecasts for FY26-FY28 have been revised lower by 20.9% to 23.3%.
The near-term earnings momentum is anticipated to remain subdued, aligned with weaker activity levels in the domestic oil & gas sector. Cautious spending by Petronas and expectations of lower Brent crude oil prices suggest a moderation in project deliveries, particularly for the Trading division. However, the company’s diversified exposure across petrochemical, palm oil, water treatment, and shipbuilding sectors is expected to partially mitigate the impact of the ongoing downcycle.
Persistent external challenges, including Section 232 tariffs and foreign exchange volatility, are noted. Despite these, the Manufacturing division benefits from a strong customer base and the ability to partially pass on cost increases. Nonetheless, a cautious procurement approach by clients amid global trade and currency uncertainties is expected to temper demand and order flows.
Investment Recommendation
The investment bank has maintained a recommendation on the stock, with a revised target price of RM0.72 per share (previously RM0.96). This valuation is based on a 7.0x CY26 EPS, incorporating a 3% ESG Premium. The stock is viewed as a compelling dividend play, offering a yield of approximately 10%, supported by healthy operating cash flows, minimal gearing, and a consistent payout history.
