We see two positive points from its new Kyrgyzstan contract in which PESTECH is partnering with SPECO despite the small value of USD8.5m. Kyrgyzstan is a totally new market to PESTECH and being a World Bank’s funded project means payment is secured. Furthermore, it is a good reference for future tender bids. This also marks the second new market for PESTECH this year after it managed to secure its first contract in the Philippines last month. Earnings-wise, impact is immaterial with <2% to FY17EFY18E earnings. OUTPERFORM and price target of RM2.00/SoP share maintained.

A new inroad to Kyrgyzstan. Last Friday, PESTECH announced that its wholly-owned subsidiary Pestech Sdn Bhd together with Shandong Power Equipment Co Ltd (SPECO), via a consortium called PESTECH & SPECO JV, had received the Notification of Award from Severelectro JSC for the upgrading of three substations for Severelectro in Kyrgyzstan under the Electricity Supply Accountability and Reliability Improvement Project (ESARIP) for USD8.46m. Contract agreement is expected to be signed in Oct.

Funded by World Bank. Severelectro is the largest Kyrgyzstan’s stateowned power distribution company, which serves >40% of all residential customers in the country with delivering >50% of the total electricity consumption there. The project is funded by World Bank with aim to improve the reliability of the electricity supply in the capital city - Bishkek - as well as the Chui and Talas regions. We understand that PESTECH will recognise the whole project value as it takes charge of design and engineering work while SPECO is the supplier of equipment. The project period is about one year.

Immaterial earnings impact for now. We are positive on this new venture given that PESTECH is making inroad into a new market as well as it being funded by World Bank, which means payment is secured. In addition, a World Bank’s project could be a good reference for future tenders. That aside, impacts to FY17E-FY18E earnings are < 2% each assuming it is able to maintain 10%-12% net margins. In the future, we believe PESTECH will still look for projects in Kyrgyzstan that come with secured payment like this World Bank’s funded project to minimise default risk.

Maintain OUTPERFORM. This project will help to boost order book by another c.RM35m from RM840m, which was recorded in end-June. Although the contract value is small, it is a good reference project for future tendering. We maintain our estimates for now. We continue to like the company for its explosive earnings growth story. OUTPERFORM reiterated with unchanged price target of RM2.00/SoP share.

Risks to our call include failure to replenish order book and cost overruns.

Source: Kenanga Research - 26 Sep 2016