News  Yesterday, PESTECH announced that its wholly-owned subsidiary Pestech had on 23 Feb 2015 received a Letter of Award from N.U.R. Distribution Sdn Bhd for the engineering, procurement and construction, commissioning and testing work package for the West 132kV substation project in Kulim, Kedah.

 The project, which is worth RM28.8m, has commenced on 23 Feb 2015 and is expected to be completed in 15 months time.

Comments  This is PESTECH’s second project secured in 2015 (totalling RM30m) and its seventh project in FY15 (18 months period - Jan 2014 to Jun 2015) with total project value of RM440m vs. our FY15 new job assumption of RM550m. We believe our assumption is still achievable given that a few more contracts remain in the pipeline.

 NUR is a new addition to the list of private utility clients to PESTECH, and this project boosts PESTECH’s order book to RM530m with at least two years of firm earnings visibility.

Outlook  Earnings for the remaining 6-month period of FY15 is expected to remain strong given that billings for both Alex Corp and Sakura projects are expected to contribute more from the initial stages.

 PESTECH is tendering for RM1.6b work of jobs of which it has a fair chance of securing some.

Forecast  As this contract is still within our FY15 new job assumption, therefore no change to our FY15-FY16 estimatesis made.

Rating Maintain OUTPERFORM

Valuation  Share price has performed fairly well by gaining 36% YTD, on the back of expectations of strong contract flows which surpassed our price target.

 We decided to upgrade our targeted CY15 PER to 15x, from 13x previously, which is at a premium to utility sector benchmark TENAGA (MP; TP: RM13.94)’s targeted valuation of 14.3x.

 We believe our premium valuation for PESTECH is justified based on the fact that it is a high-growth company with 3.5-year earnings’ CAGR of 62%. In fact, telco-infrastructure company like OCK (NOT RATED) is trading at higher premium of forward PER of 30x vs. telco sector’s valuation of 25x-29x, given its growth story.

 As such, our new target price is now raised to RM5.04/share from RM4.36/share.

Risks to Our Call  Failure to replenish orderbook.

 Cost over-runs. 

Source: Kenanga