Pantech streamlines galvanising business
AllianceDBS Research 
AllianceDBS Research sees the acquisition of PGSB as a strategic investment for Pantech

Pantech Group Holdings announced that it has entered into a share sale agreement with Euromech Machinery Sdn Bhd for the acquisition of the remaining 9.8 million ordinary shares which represent 43.46% equity interest in Pantech Galvanising Sdn Bhd (PGSB) for RM7 mil cash. PGSB was a joint venture (JV) between Pantech and Euromech.

The proposed acquisition will enable Pantech to gain full control of the affairs and business direction of PGSB. Pantech intends to streamline all business activities of PGSB to better manage and control galvanising activities under the same portfolio.

PGSB, which commenced operations in December 2016, is equipped with the largest hot-dip galvanising facility in the southern part of Peninsular Malaysia with a planned capacity of 48,000 metric tonnes (MT) per annum. The proposed acquisition represents a strategic investment for its expansion initiative and is expected to contribute positively to group earnings.

PGSB’s galvanising plant is still loss making as of end-H1FY18 due to start-up costs, with utilisation rate at 30%. However, we expect it to break even by end-FY18 as the utilisation rate approaches 50% and see its margins expanding. Furthermore, we expect the plant to progressively increase its utilisation to full capacity in FY19 to support growing demand from Petronas’ refinery and petrochemical integrated development project which is anticipated to require one million MT of galvanised metal.

We understand that at full capacity utilisation, the galvanising plant can contribute up to RM10 mil operating profit annually at an operating margin of 20%. We have not factored this into our forecast as contributions from the galvanising plant are expected to be minimal until it reaches full utilisation. Maintain buy with target price of 85 sen.

This article first appeared in Focus Malaysia Issue 256.