KUALA LUMPUR: Pantech Group Holdings Bhd will likely secure more contracts and rising contributions from the palm oil industry and from Petroliam Nasional Bhd (Petronas) capital expenditure cycle this year.
Mercury Securities Sdn Bhd said as Pantech supplies oil pipes, valves, and flanges (PVF) to the palm oil industry, the research firm thinks more contracts could be secured from the palm oil industry moving forward.
The company has more than 30,000 stock keeping units (SKU), better positioned to meet rising customer demands.
The research firm noted that revenue contributions from the palm oil industry increased from seven per cent in the financial year 2017 (FY17) to 16 per cent in FY21 and are expected to hit 20 per cent by FY23.
Pantech is an established one-stop provider of PVF and provides total solutions for the fluid and gas transmission systems.
The company has more than 500 customers, with major customers including Petronas, Shell, Exxon, and exports to 69 countries worldwide where 60 per cent of sales are derived domestically while 40 per cent are from exports.
Apart from the palm oil industry, Mercury Securities also noted that Pantech is also in a better position to secure more contracts from Petronas.
The research firm noted that Petronas's increased annual capex allocations from five per cent to nine per cent suggesting a positive industry outlook, potentially adding a tally to Pantech's current order book of RM550 million.
"With more than 50 per cent of Pantech's earnings derived from this sector, the company is in the right position to benefit from the capex cycle," the firm said.
"We initiate coverage on Pantech with a Buy recommendation with a target price of RM0.72 on the premise of 2-year compounded annual growth rate (CAGR) forward earnings of 37.8 per cent and cheap valuations," it said.