KUALA LUMPUR: Pestech International Bhd is strengthening its rail electrification business as it seeks to increase its participation in Southeast Asia’s infrastructure development and modernisation.

“We foresee that rail electrification is something that we want to participate actively in,” Pestech executive director and chief executive officer Paul Lim Pay Chuan told The Edge Financial Daily in an interview. Lim is also a major shareholder of Pestech, with a 20.535% stake as at April 21, 2015.

“We have been doing electrification for substation transmission line, which runs at a voltage of 230kV (kiloVolts) to 300kV. But for rail, it only needs a 25kV system which we are able to handle,” he said.

A rail electrification system supplies electric power to railway trains and trams without an on-board prime mover or local fuel supply.

Lim also said the group had recently acquired some rail infrastructure equipment from Balfour Beatty Rail Ltd, which will help to boost Pestech’s rail electrification business.

Pestech’s maiden project in railway electrification was its involvement in Keretapi Tanah Melayu Bhd’s (KTMB) commuter service Port Klang Line extension linking Subang Jaya to Subang Skypark.

The electrification works in this project are in collaboration with ABB Malaysia Sdn Bhd, said Lim.

“We already have the technology, and have passed MiGHT’s (Malaysian Industry-Government Group for High Technology) audit that allows Pestech to participate in its offset programme,” he added.

MiGHT operates under the purview of the Prime Minister’s Department. Its offset programme is an initiative to facilitate technology transfer by pooling international and local players together in some of the infrastructure development projects.

Through this programme, Pestech is hoping to be chosen as a collaborative partner in upcoming rail electrification projects such as Mass Rapid Transit Line 2 (MRT 2).

Lim said another reason to venture into railway electrification is the profit margin of about 15% to 17%, which is comparatively higher than the group’s current average margin of 9% to 11%.

Pestech is mainly involved in the building of power substations and electricity transmission and distribution assets.

The group has recently signed a memorandum of understanding (MoU) with Benalec Holdings Bhd, to explore the feasibility of building a power supply infrastructure for the latter’s Tanjung Piai Integrated Petroleum and Maritime Industrial Park (Tanjung Piai Industrial Park) in Pontian, Johor.

According to a filing with Bursa Malaysia in mid-April, Benalec (fundamental: 0.6; valuation: 1.15) said its indirect wholly-owned subsidiary, Tanjung Piai Maritime Industries Sdn Bhd, had entered into the MoU with Pestech’s wholly-owned unit Pestech Sdn Bhd (PSB) to look at avenues which can bring about the engagement.

“The power supply infrastructure is for the electricity distribution within Tanjung Piai Industrial Park, taking supply from the Tenaga Nasional Bhd (TNB) grid,” Lim said.

“It will be at a voltage level to be determined by Tenaga and/or the relevant authorities, depending on the total power demand requirements of Tanjung Piai Industrial Park,” he added.

On whether Pestech would secure another concession from Tanjung Piai Industrial Park, Lim said it would depend on the model of the power supply agreement between TNB and/or the relevant authorities and Benalec.

“There are various modes of business structures that can be considered, one of which could be in the form of concession at Benalec’s level to operate, own, maintain the electrical infrastructure within Tanjung Piai Industrial Park that may subsequently allow the company to collect the electricity charges from the investors within Tanjung Piai Industrial Park,” said Lim.

“Pestech’s role in the arrangement is to assist Benalec in the planning and construction aspects of the project to ensure a smooth and effective execution eventually,” he added.

According to Lim, PSB is currently the main revenue contributor to the group, a unit which majors in engineering, procurement, construction, and commissioning (EPCC) of power substations and transmission lines.

For the 12 months to Dec 31, 2014, Pestech posted a 17.2% increase in net profit to RM24.29 million from RM20.72 million the previous year, while revenue grew 31.3% to RM238.57 million from RM181.77 million.

Nevertheless, Lim said the group had been preparing — through the establishment of Pestech Technology Sdn Bhd — to grow its power plant automation and system design business, to the extent where its revenue contribution would be on par with PSB.

One of the products that Pestech Technology will be delivering is power plant operation simulator, which Lim said the group is eyeing to supply to 1Malaysia Development Bhd’s RM11 billion Jimah East power plant project in Negri Sembilan.

Although the progress of Jimah East power plant’s construction has halted, Lim said Pestech Technology will be ready for the simulator construction once it kicks off.

“Other than Jimah East, there are a lot of opportunities [to supply] power plant simulators as the Energy Commission has made it mandatory for power plants to build them [in order] to facilitate staff training,” he said.

Power plant simulators are able to simulate various unusual conditions of a power plant, allowing operators to react to different anomalies.

“This is part of our expansion plan, not only can we reduce our reliance on foreign expertise, but we could eventually export the technology know-how either,” Lim aspired.

Pestech (fundamental: 0.9; valuation: 0.7) shares closed 0.39% higher at RM5.10 last Friday, bringing a market capitalisation of RM939.46 million.

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This article first appeared in The Edge Financial Daily, on April 27, 2015.