9MFY16’s MYR30.6m net profit fell short of our/street projections. Maintain BUY, but with a lower MYR0.64 TP (from MYR0.75, 16% upside) as Pantech’s business model is more resilient against oil price movements. Its physical presence in Johor also suggests that it may win more supply contracts from RAPID to help the company survive the oil price volatility.

Results improve, but Pantech’s 9MFY16 (Feb) MYR30.6m net profit only reached 62.7%/61.2% of our/consensus full-year estimatesrespectively. The plunge in oil prices has clearly dampened its business, which is closely linked to the oil & gas industry. Meanwhile, we note thehigher sales (+26.3% QoQ) at its trading division in 3QFY16, which we suspect was boosted by deliveries to the Refinery and Petrochemicals Integrated Development (RAPID) project. However, lacklustre sales at its manufacturing unit – with an operating margin that declined to 13% from 18% in 2Q – failed to substantially lift the overall bottomline.

Not enough shelter from RAPID. We remain assured that the USD16bn RAPID project is proceeding according to plan, with Petronas dishing out more contracts in recent months. We understand from our source that Pantech has already begun supplying small volumes related to RAPID. Being a local player with a physical presence in Johor, and a new warehouse adjacent to the development, it may win more supply contracts that could be substantial over the next five years of RAPID’s constuction. That said, we believe Pantech would not be entirely sparedfrom the collapse in oil prices, as other oil & gas activities are likely to slow down and dent sales at its trading and manufacturing units.

Maintain BUY, with a lower MYR0.64 TP (from MYR0.75). We cut Pantech’s earnings by 13.7% to 14.9% for the next three years on the back of a challenging business environment. That said, its business model enables the company to be more resilient against the volatility in crude oil prices. Our valuation, at just 8x 2016F P/E (which reflects a lower MYR0.64 TP), still offers a 16% upside. As such, we think Pantech is still justified as a BUY, as any bottoming out of oil prices may prompt investors to refocus on the stock.