Although its share price has rallied 64% in the past five months, we still see upside in PESTECH given the upcoming tenders in which it stands a good chance in securing a few. Upbeat sentiments from contract flows and bonus issues which will go "ex" on next Tuesday bode well for PESTECH. With its current order-book of RM660m, our FY14-FY15 revenue forecast is fairly achievable. On the back of RM880m new potential contract awards as mentioned above, we raise our FY15 orderbook replenishment assumption to RM600m from RM400m. This raises our FY15 forecast by 37%, thus our new TP is now upgraded to RM7.27/share (or ex-bonus TP of RM4.36/share) based on unchanged CY15 13x PER. OUTPERFORM reaffirmed.

Strong share price performance. Since our initiation coverage on PESTCH in Feb-14, its share price has rallied 64% and even surpassed our previous price target of RM5.34/share. This is attributable to encouraging contract flows and the 2-for-3 bonus issue exercise which will go "ex" on next Tuesday. Meanwhile, the soft start in 1Q14 results was not entirely unexpected due to seasonality factor and it is on track to meet our FY14 forecast as well as market consensus.

Still room for upside. With its current order book of RM660m, our FY14-FY15 revenue estimates of RM245m-RM335m are fairly achievable. Most of the contracts secured are running up to 24 months except the USD86.1m Cambodian project clinched in Mar-14 which is 32 months. As such, with its current tender book of RM1.6b (as at May-14), any new award contract to PESTECH is highly positive to its bottom-line, and hence its share price.

RM880m tenders outcome in the next six months. PESTECH participated in the high profile RM300m Pengerang tender in RAPID, which it stands a good chance and the outcome is expected early 2015. Besides this, out of the RM1.6b, there are also a few other tenders totalling RM550m which PESTECH also has a fair chance of securing in the next six months. This includes the RM200m Sarawak utility contract, RM30m Northern Utility project, RM120m Sri Lankan project, RM30m Philippine project and RM200m Track 3B project.

Good potential in digital telco equipment. In end Jun-14, PESTECH secured a small RM1.1m contract from TENAGA (OP; TP: RM13.58) to supply the utility synchronous digital hierarchy (SDH) telecommunication equipment for TENAGA operation requirement. This is a trial project to replace TENAGA’s existing communication system with substations as the new system is more efficient and effective. We understand once this is completed, the system upgrade will cost c.RM500k-RM800k per substation. The potential from this deal could be substantial given that TENAGA has a total of 500 substations in the country.

Still OUTPERFORM with TP upgraded to RM7.27/share. With RM880m tenders outcome in the next six months with considerably good chance of securing several of them, we decided to raise our order-book replenishment assumption for FY15 to RM600m from RM400m previously. This increases our FY15 revenue assumption to RM450m, from RM335m previously, which we believe is not overly aggressive. Thus, our new FY15 forecast is raised by 37%. As such, our new price target is now upgraded to RM7.27/share (or ex-bonus TP of RM4.36/share) from RM5.34/share previously, based on unchanged CY15 13x PER. OUTPERFORM retained.

Source: Kenanga