Forecasts and Valuations Feb-14 Feb-15 Feb-16F Feb-17F Feb-18FPantech’s 1HFY16 (Feb) net profit of MYR19.6m fell short of our/street projections, but we maintain our estimates as we expect a stronger 2HFY16. BUY, with a MYR0.75 TP (20% upside) as its business model is more resilient against oil price movements. The company’s physical presence in Johor also suggests that it may win more supply contracts from RAPID, where job awards seem to be picking up steam.

Mixed results. Pantech’s 1HFY16 net profit of MYR19.6m only made up 40%/41% of our/consensus full-year estimates. However, we are encouraged by another improvement show n in its 2Q bottomline, at MYR10.4m (+14.3% QoQ). The oil price plunge has undeniablydampened Pantech’s business, which is closely linked to the oil & gas industry. Overall sales fell 4.4% YoY in 1HFY16 following the poorer demand at both its manufacturing and trading units. However, the continued weakness of MYR vs USD helped to boost its manufacturingoperating margin to 18.0% in 2QFY16 vs 11.4% in 1QFY16.

RAPID – a key silver lining. Meanwhile, we believe Pantech’s trading division supplies items mainly for recurring maintenance works, which are less sensitive to oil price movements. Presently, we are excited that works for the USD16bn Refinery and Petrochemicals Integrated Development (RAPID) project are gaining pace, with Petronas dishing out more contracts in the recent months (see Figure 6). We understand from our source that Pantech has already won some small supply contracts related to RAPID. Furthermore, as a local player with a physical presence in Johor, it may win supply contracts that could be substantial over the next five years of RAPID’s construction. Pantech is constructing a new warehouse just adjacent to the development to better serve this project.

BUY, with a MYR0.75 TP. Pantech’s business model enables the company to be more resilient against the volatility in crude oil prices. This, coupled with its financial performance, is likely to improve further in 2HFY16 on supply delivery to the RAPID project. As such, we keep our estimates and BUY recommendation on Pantech. We believe our valuation parameter, at just 8x 2016 P/E which reflects a TP of MYR0.75, already takes into consideration the overall poor industry outlook. Although the stock has gained 15.7% since early September, it still offers a decent potential upside of 20.0%.