Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily, on September 29, 2015.

 

Pestech International Bhd
(Sept 28, RM5.88)

Maintain outperform call with a higher target price (TP) of RM6.49: We raise our order book replenishment assumptions by RM100 million each to RM700 million and RM800 million for financial year ending June 31, 2016 (FY16) and FY17; and revenue assumption by RM20 million and RM30 million to RM500 million and RM600 million respectively. Thus, FY16 and FY17 estimates are upgraded by 5% and 10%.

Post-earning revision, new TP is now at RM6.49 per sum-of-parts (SOP) share from RM6.11 per SOP share previously. 

Last Friday, Pestech announced that its wholly-owned subsidiary Pestech Sdn Bhd had received a letter of acceptance (LoA) from Tenaga Nasional Bhd (TNB) for a project involving the construction of the 500/275 kilovolt (kV) Yong Peng East (2x1050 megavolt-ampere [MVA]) backbone main intake substation.

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The project is valued at RM134.4 million, to be completed within three years from the date of the LoA on Sept 23, 2015.

This project will enable the national grid 500kV backbone connectivity from Yong Peng East, Johor to Lenggeng in Negeri Sembilan and further access to Ayer Tawar in Perak.

Upon completion, the project will form the transmission line infrastructure for the peninsula’s power grid system.

We are positive on this new win given that this is the first 500kW substation project it ever secured. This could open the door for Pestech to bid for similar voltage projects in the region. In addition, this is also the highest contract value that Pestech has ever secured from TNB. 

So far, this is the first project secured in FY16 (July 2015 to June 2016) which is on track to meet our full-year assumptions of RM600 million order book replenishment. 

This also bumps up its total order book to RM857 million, from RM723 million based on end-June 2015 update, which will keep them busy for the next three years. We understand that it is looking to secure two major projects worth a total of  about RM700 million in FY16; this could almost double its order book. 

The newly awarded Cambodia concession business offers a guaranteed recurring income over 25 years in contrast to its existing business where contracts only last for two to three years.

This could easily contribute RM16 million to RM20 million per year to Pestech’s bottom line from 2020 onwards; a substantial impact given its net profit level of RM24.3 million in January to December 2014. — Kenanga Research, Sept 28

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