This article first appeared in The Edge Malaysia Weekly, on March 7 - 13, 2016.

PESTECH International Bhd, a home-grown integrated electric power technology company, is planning to list its Cambodian subsidiary on the Cambodia Securities Exchange (CSX) in a move to gain a firm foothold in Indochina.

According to Pestech CEO and executive director Paul Lim Pay Chuan, the strategic geographical location of Cambodia has made the country an ideal base for the group to extend its operations into Laos and Myanmar.

By floating the shares of Pestech (Cambodia) Ltd (PCL), an indirect wholly-owned subsidiary of Pestech, the group is also sending a message to the Cambodian government that it is committed to developing the country’s power infrastructure, he says.

“We intend to establish a strong foothold in Indochina because we see it as an infrastructure play for at least the next 10 to 15 years. We want to participate in the region’s infrastructure build-up and we would like the countries to pick up our know-how in the process,” Lim tells The Edge in an interview.

“CSX is a platform for us to make a strong statement that we want to be there (in Cambodia) for the long term and we wouldn’t mind having public investors share our success.”

Lim, 45, was appointed to the board in August 2011. He is the nephew of Pestech executive chairman and substantial shareholder Lim Ah Hock.

On Feb 25, Pestech had proposed the listing of PCL, which will enable the latter to gain access to the Cambodian capital market for fundraising to pursue future growth opportunities as well as enhance its profile in the country.

Incorporated in 2010, PCL is principally involved in the construction of electrical substations and transmission lines. It is also involved in the high voltage and extra high voltage segments of the power system design, engineering and infrastructure industry.

“After five years of working there, we see a lot of opportunities. Not only that, neighbouring countries such as Laos and Myanmar also have many opportunities for infrastructure build-up,” says Lim, who is also a director of PCL.

In the second half of 2015, PCL posted a net profit of US$2.87 million (RM11.9 million) on revenue of US$36.8 million. Its net assets stood at US$4 million. The company aims to make an annual profit of US$5 million in 2016 and 2017.

Lim expects PCL’s shares to be valued at a price-earnings ratio of more than 10 times, giving the company a market capitalisation of at least US$50 million.

The initial public offering (IPO) is expected to be concluded by end-2016 or early 2017. Post-listing, Pestech intends to maintain a 60% to 75% stake in PCL.

“We have not finalised the scheme, but a big portion of the IPO is likely to come from the issuance of new shares,” says Lim.

He adds that if the listing exercise involves an offer for sale of shares to selected investors, Pestech, being the ultimate holding company of PCL, could use the proceeds to pay a special dividend to its shareholders.

While Lim acknowledges that the Cambodian capital market is still relatively young, concern that PCL’s IPO may not receive overwhelming response from the investing public there does not faze him.

“If we can collect US$20 million to US$30 million from the market, it would be good enough as PCL doesn’t need a lot of capital,” he explains.

More importantly, he says, it would make a huge difference to PCL’s profile to become the first Malaysian-owned company to be listed in Cambodia as well as the first listed company there to be owned by another listed company. “We want to grab these interesting positions ... it’s a good story to tell.”

Lim highlights that PCL has an order book of US$130 million to US$140 million, which will keep it busy until 2018.

The company has been awarded a US$86.05 million contract to build a 198km power transmission line from the Sihanoukville area to Phnom Penh. This project also includes the design and construction of a 230kV double circuit overhead transmission line from West Phnom Penh substation to Stung Hav substation as well as the design and commissioning of a 230/115/22kV substation extension project in Cambodia.

PCL has also secured an engineering, procurement, construction and commissioning contract worth US$60.6 million for the construction of a 125km 230kV power transmission system between Kampong Cham and Kratie for its sister company, Diamond Power Ltd.

To recap, Pestech embarked on a build, operate and transfer business model when its 60%-owned Diamond Power successfully clinched a 25-year independent power transmission concession development project to bring electricity from the upcoming Hydro Power Lower Se San 2 plant in Stung Treng to Kratie.

It is learnt that PCL and Diamond Power will continue to operate as separate entities as there is no plan to consolidate the two at the moment.

Moving forward, PCL also plans to set up a transformer assembly plant in Cambodia through a joint venture with a China-based transformer manufacturer.

With the higher traffic growth in Cambodia, Lim says there are plenty of opportunities for PCL to undertake some rail electrification works in the near future.

“In Cambodia itself, the opportunities are good enough. Yes, we cannot win everything, but we are not going to sit comfortably and do nothing. We want to make Cambodia our hub of growth and want PCL to be more independent and better prepared to take on more projects in Indochina,” he says.

He reiterates that there is a huge potential in Indochina as countries such as Laos, Myanmar and Cambodia are hunger for electricity infrastructure.

For instance, Lim says, Cambodia, which has an electrification rate of 25% to 30%, is targeting more than 90% by 2030, while the electrification rates in Laos and Myanmar are still low, at between 10% and 15%, mostly concentrated in big cities.

“When there is no electricity network, there is no modernisation. The power infrastructure is always the backbone of a country’s progress. Our targeted countries — Laos, Myanmar and Cambodia — are not going backwards,” Lim concludes.

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