News

Last Friday, PESTECH announced that its whollyowned subsidiary Pestech Sdn Bhd had received the Letter of Acceptance from TENAGA (MP; TP: RM12.78) for a project involving the construction of the 500/275kV Yong Peng East (2x1050MVA) backbone main intake substation.

The project is valued at RM134.4m, to be completed within three years from the date of Letter of Acceptance on 23 Sep 2015. This project will enable the national grid 500kV backbone connectivity from Yong Pest East, Johor to Lenggeng in Negeri Sembilan and further access to Ayer Tawar in Perak. Upon completion, the project will form the transmission line infrastructure for the Peninsular’s power grid system.

Comments

We are positive on this new win given that this is the first 500kW substation project it ever secured. This could open the door for PESTECH to bid for similar voltage projects in the region. In addition, this is also the highest contract value that PESTECH has ever secured from TENAGA.

So far, this is the first project secured in FY16 (Jul 2015 – Jun 2016) which is on track to meet our fullyear assumptions of RM600m order-book replenishment. This also bumps up its total order-book to RM857m, from RM723m based on end-Jun 2015 update, which will keep them busy for the next three years.

Outlook

We understand that it is looking to secure two major projects worth a total of c.RM700m in FY16; this could almost double its order-book.

The newly awarded Cambodia concession business offers a guaranteed recurring income over 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; a substantial impact given its net profit level of RM24.3m in Jan-Dec 2014.

Forecast

We raise our order-book replenishment assumptions by RM100m each to RM700m/RM800m for FY16/ FY17 and revenue assumption by RM20m/RM30m to RM500m/RM600m, respectively. Thus, FY16/FY17E estimates are upgraded by 5%/10%.

Rating

Maintain OUTPERFORM

Valuation

Post earning revision, new price target is now at RM6.49/SoP share from RM6.11/SoP share previously. This is based on unchanged: (i) CY16 16.6x PER (+1.5 SD 3-year mean) on existing businesses, and (ii) FCFF @ 7.2% discount rate on the Cambodia BOT.

Risks to Our Call

Failure to boost orderbook.

Cost over-runs.

Source: Kenanga Research - 28 Sep 2015