Period

5Q15/15M15

Actual vs. Expectations

The 5Q15 results came within our expectations as well as that of market consensus with the 15M15 net profit of RM32.0m just a c.RM8m shy from our 18-month FY15 estimate.

Dividends

No dividend was declared as expected.

Key Results Highlights

5Q15 net profit rose 5% QoQ to RM7.7m from RM7.4m while revenue grew 10% to RM73.3m from RM66.8m previously. The lower rate of improvement in bottomline as opposed to the topline was basically due to more than 50% of the revenue derived from the civil work for substation projects of (i) NUR, (ii) Mambong, and (iii) Mapai, which tend to be lower margined. As such, group’s operating margin deteriorated to 12% from 18%. Meanwhile, it reported a tax credit of RM395,000 in 5Q15, which was attributable to the capital allowance arising from the purchase of electrification machinery from Balfour Beatty.

As there is no comparative 5Q14 number, we compared 5Q15 (Jan-Mar 2015) to the same period last year, Jan-Mar 2014 (which is 1Q15); net profit jumped from RM4.4m to RM7.7m on the back of 62% hike in revenue as jobs that were secured in the past one year started to be recognised.

Outlook

The newly awarded Cambodia concession business offers a guaranteed recurring income for 25 years in contrast to its existing business where contracts only last for 2-3 years. This could easily contribute RM16m-RM20m/year to PESTECH's bottom-line from 2020 onwards. This is a substantial impact to PESTECH judging from its net profit of RM24.3m in Jan-Dec 2014.

Meanwhile, its current orderbook of c.RM767m should keep them busy until end-2017.

Change to Forecasts

No changes to our FY15E-FY17E numbers.

Rating

Maintain OUTPERFORM

Valuation

Price target of RM6.11/SoP maintained. This is based on: (i) CY16 16.6x PER (+1.5 SD 3-year mean) on existing business, and (ii) FCFF @ 7.2% discount rate on the Cambodia BOT.

Risks to Our Call

Failure to replenish orderbook.

Cost over-runs.

Source: Kenanga Research - 28 May 2015