PESTECH is getting yet another contract after the Kyrgyzstan contract secured last Friday. Awarded by Sarawak Energy, this contract comes with a bigger value of RM89.5m for a substation in Bintulu. With this contract, it has secured a total of three projects worth c.RM162m, on track to our FY17E contract win assumption of RM800m as there are three major tenders in the pipeline. We maintain our OUTPERFORM rating and price target of RM2.00/SoP share.

Win RM89.5m substation contract. Yesterday, PESTECH announced yet another contract win after securing its first Kyrgyzstan project last Friday. This time it is a bigger contract with a value of RM89.5m from Sarawak Energy Bhd for the New Bintulu B, 275/(132)kV substation. The contract was awarded to a non-incorporated consortium formed by PESTECH’s wholly-owned Pestech Sdn Bhd and Fuji Electric Asia Pacific Pte Ltd (Fuji). The project is expected to start in Oct and for a period of 21 months.

Third contract in FY17. We are pleased to see PESTECH securing this project, which shows its ability to clinch job from existing clients that says a lot about its track record. We understand that PESTECH will be recognising the bulk of the contract value in its account as Fuji is playing the role of project coordinator in this project. Profit margin is expected to be the same targeted net returns of 10%-12%. With this job, PESTECH has already secured three contracts in FY17 totalling c.RM162m order-book against our contract win assumption of RM800m.

On track, FY17-FY18 estimates maintained. We believe our contract win assumption of RM800m in FY17 is achievable given that PESTECH has tendered for three major jobs which it stands high chances of securing. These three tenders which could be worth up to RM1.5b in total include one local rail electrification project and two substations and transmission lines projects in Cambodia. Thus, we are keeping our estimates unchanged for now, which is backed by RM965m of its current order-book.

OUTPERFORM reiterated. This contract win again shows that PESTECH is able to secure job from existing clients, which tells a lot of its track record. Besides, it is also completing in the same level field with world-class industry players like Siemens and ABB, which showcased its technical expertise. We expect another slew of contract flows in the next few months that should propel the company’s earnings to new heights. We continue to rate the stock OUTPERFORM for its explosive earnings growth story with an unchanged price target of RM2.00/SoP share.

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

Source: Kenanga Research - 27 Sep 2016