News  Yesterday, PESTECH announced that its wholly-owned subsidiary Pestech Sdn Bhd had on 27 Feb 2015 received a Letter of Award from Sarawak Energy Bhd (SEB) in relation to the latter’s Samajaya 132/33/11kV substation establishment in Kuching, Sarawak, for a total contract value of RM48.4m.

 The project is expected to commence on 6 Mar 2015 and to be completed within 18 months.

Comments  This is yet another project secured in less than a week after it winged the RM28.8m NUR substation project in Kulim, Kedah last Tuesday.

 With this, PESTECH has secured three projects in 2015 (totalling RM78.3m) and its eighth project for FY15 so far (18 months period - Jan 2014 to Jun 2015) and chalking up total project value of RM485m which is not far from our FY15 assumption of RM550m new order book.

 This project, which is the first indoor substation in Kuching will boost PESTECH’s order book to RM570m 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 within our FY15 new job assumption, we maintain our FY15-FY16 estimates. Rating Maintain OUTPERFORM

Valuation  We maintain our targeted CY15 15x PER, which is at a slight premium to the utility sector’s benchmark TENAGA (MP; TP: RM13.94)’s targeted valuation of 14.3x, given its growth story. As such, our target price is maintained at RM5.04/share.

 Although there is less than 10% total upside potential, we keep our OUTPERFORM call unchanged on expectations of major contract flows in the next few months.

Risks to Our Call  Failure to boost orderbook.

 Cost over-runs.

Source: Kenanga