Pantech (PGHB)’s  2QFY14  net  earnings  of  MYR15.3m  (+11.2%  q-o-q, +7.0%  y-o-y)  came  in  within  our  and  street  estimates.  Although  the quarter’s revenue fell, margin improved on higher contribution from its manufacturing  arm.  The  company  has  declared  a  1.2  sen  interim dividend. We revise lower our topline assumption while maintaining our full-year earnings forecast. Maintain BUY, with our FV at MYR1.43. 
 
- Earnings in line. PGHB’s 1HFY14 net profit of MYR29.1m (+8.6% y-o-y)  was  largely  in  line  with  our  and  consensus  estimates.  Contribution from  its  trading  division  softened  during  the  half-year  due  to  weaker sales  in  the  O&G  sector  as  project  execution  slowed,  operating expenses  rose  and  it  changed  its  product  mix.  Nonetheless,  the manufacturing  division  showed  satisfactory  growth  as  it  boosted  output from  all  its  manufacturing  plants  to  cater  to  the  increase  in  local  and export  sales  demand.  Owing  to  better  niche  product  sales,  this  division recorded healthier margins.

- Revising topline forecast. Management has guided that its topline may weaken  this  financial  year  due  to  the slower  execution  of  projects.  This prompts us to revise lower our forecast revenue to MYR640m/MYR746m from  MYR733m/MYR850m  for  FY14F/FY15F.  Meanwhile,  we  revise higher  our  margin  assumption,  particularly  for  PGHB’s manufacturing arm,  which  is  making  good  progress  in  expanding  into  niche  products that  command  better  margins.  All  in,  we  are  still  positive  that  PGHB would be able to meet our full-year earnings forecast of MYR63.5m.  

- Dividend. PGHB declared a 1.2 sen dividend for 2QFY14, which brings its  accumulated  dividend  for  1HFY14  to  2.4  sen.  If  the  company maintains  this  payout  in  2H,  this  may  translate  into  a  dividend  yield  of 4.5%.

- Risks.  A  drastic  drop  in  oil  prices  and  a  halt  in  O&G  activities  could dampen the demand for the company’s products and hurt its earnings.

- Maintain  BUY.  As  we are still bullish on PGHB’s outlook,  we  maintain our  BUY  recommendation  on  the  counter,  with  our  MYR1.43  FV unchanged and pegged to a 13x FY14F P/E.

Source: RHB