Period  2Q15/1H15

Actual vs. Expectations  Although the net profit in 1H15 of RM9.7m only accounted for 34%/33% of our/street CY14 estimates, we consider this to be within expectations as the 2H is always stronger than the 1H.

 On 15 Aug-14, PESTECH announced the change of its financial year-end to June from Dec. Thus, FY15 will have six quarters; 18-month period from Jan-14 to Jun-15.

Dividends  A 2 sen NDPS was declared with option of Dividend Reinvestment Plan, compared to 3 sen NDPS declared in the same period last year.

Key Results Highlights The 2Q15 (Apr-Jun 2014 period) net profit leapt 22% sequentially to RM5.4m from RM4.4m as revenue soared 29% to RM58.2m from RM45.1m previously. This was mainly led by Project segment, which saw its operating profit rising 17% to RM8.9m as revenue jumped 28% over the quarter.

 YoY, the 2Q15 net profit grew 8% from RM5.0m last year as topline surged 40% from RM41.6m as 90% of its total RM262.5m contracts secured in 2013 were in 2H13, hence part of these contracts are starting to be recognised in the current period. YTD, the 1H15 net profit jumped 32% to RM9.7m from RM7.4m last year for the same reason mentioned above as revenue surged 57%.

Outlook  Its current order book of RM600m (from RM660m three months ago) should provide closer to two years of firm earnings visibility. The current major tender book is c.RM1.01b with PESTECH having a fair chance of securing c.RM800m which will be announced from now till early 2015.

Change to Forecasts While keeping our CY14-CY15 estimates unchanged at RM28.5m-RM55.1m, respectively, we have adjusted the timeframe for FY15-FY16 as the new financial year-end is now June from Dec previously. As such, our new FY15-FY16 estimates are RM40.2m-RM55.5m on the back of these assumptions: (i) new order book of RM550-RM600m and (ii) revenue of RM345m-RM450m. The new NDPS for FY15E-FY16E are 9.8 sen and 13.5 sen.

 We believe our new FY15-FY16 estimates are fair given that the net profit difference between the combined FY15-FY16 (RM95.7m) and CY14-CY15 (RM83.6m) is only RM12.1m, which implies a net profit of RM6.1m per quarter in Jan-Jun 2016 which is fairly achievable.

Rating Maintain OUTPERFORM

Valuation  We keep our price target of RM4.36/share unchanged based on CY15 PER of 13x.

Risks to Our Call  Failure to replenish orderbook.

 Cost over-runs.

Source: Kenanga