PESTECH bagged its first contract for FY18 from TENAGA worth RM79.5m which is a positive, on track to meet our order-book replenishments assumption of RM1b. Although Peninsular Malaysia is not its main market, this contract win shows its ability to secure contract from TENAGA. Elsewhere, we believe there should be more news from Cambodia once the BOT is ready to kick-start by this year end. We continue to rate the stock OUTPERFORM with target price of RM2.00/share for its earnings growth story.
Secure RM79.5m TENAGA contract. Yesterday, PESTECH announced that its wholly-owned subsidiary Pestech Sdn Bhd has accepted a Letter of Acceptance from TENAGA (OP; TP: RM17.17) for the supply, erect and commissioning of 2x1050 MVA autotransformers, 500kV and 275kV switchgears and ancillary equipment with associated civil works for PMU 500/275kV Olak Lempit, Selangor for a contract value of RM79.5m. The contract period is 18 months and will commence within the next 1.5 months.
First contract for FY18. This is a positive to PESTECH as the last sizeable contract from TENAGA was in Sep 2015 for the construction of the 500/275kV Yong Peng East (2x1050MVA) backbone main intake substation worth RM134.4m. Although TENAGA is not its main customer, this highlights its ability to secure contract in Peninsular Malaysia as well. This is a good start for FY18 for which we have an order-book replenishment assumption of RM1b which it is not excessive, in our view, as it bagged a total of RM910m contracts in FY17 against our assumption of RM800m.
More contracts to come. With this win, its order-book is estimated to be c.RM1.5b with earnings visibility up to end-2019. So far, the RM1b worth of domestic electrification contract is not finalised yet. And, we believe that it stands a good chance based on its track record and work capacity. Nonetheless, Indochina remains its main focus and we believe there are few more contracts open for grab there, especially once its BOT project, Diamond Power commences operations by this year-end.
OUTPERFORM reiterated. PESTECH is expected to release its FY17 results next week and we believe our estimates are achievable given that 4Q17 is a dry season in Cambodia, which is conducive for work escalation to meet timeline; thus, higher earnings are expected. We continue to like this niche utilities infrastructure play for its earnings growth story. Hence, we maintain our OUTPERFORM rating 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 - 16 Aug 2017
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