PETALING JAYA: The demand for pipes, valves and fittings (PVF) may rise in the oil and gas (O&G) sector following the increase in upstream investments and decarbonisation of operations, which in turn could benefit Pantech Group Holdings Bhd
, according to TA Research.
Pantech is a one-stop centre for PVF to provide solutions for gas and fluid transmission.
In addition, the potential of hydrogen as an energy carrier that could store, move and deliver energy would increase the demand for the production, delivery, and end-use of the gas, the research house said.
In particular, the delivery of hydrogen may necessitate the installation of new pipeline beside the existing transmission pipeline for natural gas, it added.
TA Research is positive about the outlook of Pantech due to resilient oil prices which would encourage higher upstream investment as well as the potential from carbon capture, usage and storage and hydrogen.
It said the O&G sector would continue to be the main contributor of Pantech’s revenue, consistently making up more than 50%. The sector contributed 55% of the group’s revenue in financial year 2023 (FY23). In addition, Pantech also offered an attractive dividend yield.
“At a dividend payout assumption of 50%, Pantech offers an attractive dividend yield of 6.8% to 7.3% for FY24 to FY26,” added the research house. It also raised its FY24, FY25 and FY26 earnings forecasts by 3.4%, 4.3% and 5% respectively.
Following the adjustments in its earnings forecasts, TA Research raised the stock’s target price to RM1.18 pegged to 10 times FY24 earnings per share. It reiterated a “buy’’ call on Pantech.
It said oil prices would remain bullish in the short to medium term driven by voluntary production cuts by Saudi Arabia and Russia that had placed a floor on oil prices.
There is resilient demand despite synchronised interest rate hikes by global central banks due to inventory restocking, according to the research house.
On the backdrop of resilient oil prices, the upstream investments in the O&G sector should be strong and this would benefit Pantech, it said.
The O&G sector is also getting increasing pressure to decarbonise its operations, it added.
