PESTECH has clinched yet another contract from the Gemas-JB Double Track Electrification project, for the signalling system, which is worth RM75m; lifting its order- book to a record high of RM2.1b. After securing this project, focus is now switched back to the region for the transmission line, substation & underground cable project. With undemanding valuation at 11x FY20 PER, we maintain OUTPERFORM at RM1.95 for its earnings growth story.

Secured a signalling system contract. Yesterday, PESTECH announced that the Ansaldo STS Pestech Consortium, an unincorporated consortium between PESTECH’s wholly-owned subsidiary Pestech Technology Sdn Bhd and Ansaldo STS Malaysia Sdn Bhd, had accepted a Letter of Award from Sykt Pembenaan Yeoh Tiong Lay Sdn Bhd, under SIPP-YTL JV for the turkey EPC relating to the signalling system for the Gemas-JB Electrification Double Track at a fixed sub-contract price of RM339m, includes optional items worth RM19.8m. The project will take 26 months to complete the project by 1 April 2021.

Second contract from for Double-Track project. The total sub- contract value for PESTECH’s portion of work is RM75m, totalling its contract value win from the Double-Track project to RM474m after it earlier secured the EPC and maintenance of the electrification system worth RM399m in end-Sep. This is definitely positive for PESTECH as it has further built up its local participation for the signalling portion of the rail electrification and is a good future reference in bidding for projects both local as well as regional.

Contracts in hand will keep them busy till 2021. This is the third contract PESTECH has secured in FY19, totalling RM532m and bringing the total current order-book to RM2.1b which will keep them busy till 2021. With the East Coast Rail Link and KL-Singapore High Speed Rail projects still uncertain at the moment and the KVDT2 will be retendered, PESTECH’s focus will switch back to the region for the transmission line, substation and underground cable projects.

Undemanding valuation; OUTPERFORM reiterated. We keep our FY19-FY20 estimates unchanged for now despite this new contract win as it is still within our contract win assumptions. We continue to like this niche utility infrastructure play for its earnings growth story. In fact, its valuation is no longer excessive following the lacklustre share price performance in the past two years while earnings momentum remains strong. Hence, we maintain our OUTPERFORM rating with an unchanged price target of RM1.95/SoP share. Risks to our call include: (i) failure to replenish order book, and (ii) cost overruns.

Source: Kenanga Research - 10 Oct 2018