$PANTECH potential BUY after Trade War.

2018年8月8日

Escalating US-China trade war to have negative effect on manufacturing segment. To suspend all carbon steel exports to US. Cut FY19-20 earnings due to unexpected preliminary circumvention. Downgrade to HOLD with TP of RM0.60.

Based on Valuation TP of RM0.60 is based on 12x CY18 EPS. This is
in line with +1SD of its historical mean PE.
Key Risks - Escalating US-China trade war. Any delays or failed attempt to
lift the preliminary circumvention will have detrimental impact
on Pantech’s earnings.

TANGLED in US-China Trade War :
The US Department of Commerce (DOC) has issued a
preliminary affirmative anti-circumvention determination
concerning carbon steel butt-weld fittings from Malaysia.

Carbon steel fittings having an inside diameter of less than 14 inches
exported by this comp to the US are subject to a cash deposit rate for estimated AD duties of 182.90% ad valorem, based on the duty rate in effect on
carbon steel butt-weld fittings from China.

On my view, PANTECH should cut FY19-FY20 earnings by 37%/20% for this matter. 70% of Pantech’s carbon steel products are exported to the
US. Huge amount for this company.

Key Risks:
Changes in regulations. Changes in import export regulations
and duties could affect the group’s operations. The imposition
of anti-dumping duties on certain products manufactured by
the group has occurred before, which led to temporary
earnings disruptions.
Project delays. The O&G sector is susceptible to project delays
and this could lead to lumpy earnings, especially for the
trading division. The group is also subject to RAPID’s progress
in Pengerang. Potential delays could push the recognition of
some earnings to FY19.
Industry cycles. Pantech’s high exposure to the O&G industry
also means that it is not immune to the industry’s broad cycles.
An industry downturn, which is led by persistently low crude
oil prices following a sharp drop, would dampen its revenue
and earnings

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