$PANTECH / 5125 (PANTECH GROUP HOLDINGS BERHAD): Strong Fundamentals and Potential Value Unlocking

Pantech Group has consistently demonstrated strong performance over the past decade, showing steady growth in revenue, operating profit margins, and core net profit margins. A key metric often used by Warren Buffett for stock evaluation is Return on Equity (RoE), and Pantech has shown consistent improvement in this area over the last 10 years.

For any business, Free Cash Flow (FCF) is crucial as it indicates the actual cash available from operations, a vital measure of financial health. Pantech has maintained positive FCF over the past decade, showcasing its ability to sustain and grow its business while maintaining a stable financial position, even during economic fluctuations. Although the company previously carried net debt, it has significantly reduced its net debt ratio since FY2020, and by FY2024, Pantech achieved a net cash position.

Another important indicator for investors is Dividend Yield, which measures the income generated from dividends relative to the company’s share price. Pantech has consistently paid dividends over the past 10 years, and since FY2022, its dividend yield has risen to 5.8%, providing a reliable income stream for investors.

Value Unlocking on the Horizon

According to an April 2024 research report by TA Securities, Pantech Group's plan to list its wholly-owned subsidiaries—Pantech Stainless & Alloy Industries and Pantech Steel Industries—on the Main Market through a special purpose vehicle is expected to unlock significant value. Analysts suggest that this listing, assuming a conservative Price-to-Earnings (P/E) ratio of 12 times and a 40% public offering, could be valued at RM600 million. The RM240 million in proceeds from this listing could be used for mergers and acquisitions to further expand the company.

In addition to this, Pantech Group's long-term outlook remains positive, driven by strong oil prices that boost upstream capital expenditure, as well as policy support from initiatives like the New Industrial Master Plan 2030 and the Chemical Industry Roadmap 2030, which are expected to stimulate downstream growth.

Additionally, bidding for the Pengerang Integrated Petroleum Complex (PIPC) in Johor is expected to commence in mid-2024, further adding to Pantech’s growth potential.