1QFY21 core profit rose 5% sequentially to RM17.4m, which met expectations, owing to higher construction profit from BT concession asset. Going forth, the delayed claim in 2HFY20 pushed forward to FY21 together with BT construction profit should lead earnings higher. Maintain OP with unchanged TP of RM1.15 as we still like the company as a niche utility infrastructure play.

1QFY21 in line. PESTECH reported 1QFY21 results which met expectation with core profit of RM17.4m making up 23% of our FY21 estimate. Seasonally, 1H is a weaker period especially for Cambodia projects with the monsoon season affecting work progress there. While there is no regular dividend, it declared a 2nd special dividend of 0.5 sen last Friday within two months after the 1st special dividend of 0.5 sen was announced on 08 Oct (ex-date: 27 Nov; payment date: 18 Dec) - the first dividend payout since 4QFY16. We were surprised with the special dividends albeit being a small token.

Improved sequential results… 1QFY21 core profit rose slightly by 5% QoQ from RM16.5m, despite stronger growth of 24% at top-line which was largely due to higher recognition of construction earnings for its 70%-owned ODM Power Company Ltd (ODMPCL) which manages the “Build-and-Transfer” concession asset in Cambodia. The smaller percentage of profit growth was largely due to higher taxation (by 2x) and MI due to higher construction profit from ODMPCL. In term of job progress; the JB-Gemas double-track is completed up to 29% job progress in 1QFY21 from 19% in 4QFY20, KVDT to 74% from 71%, MRT2 to 69% from 63%, Alex Corp’s Tatay at 70% from 68% while ODMPLC is at 37% from 9%.

…but impacted by higher taxation and MI. YoY, 1QFY21 core profit fell 9% from RM19.0m, although revenue jumped 32%, which was owing to higher taxation and MI as ODMPCL’s construction project was started to be recognised in 4QFY20. This 10-year plus one month concession asset will provide two streams of earnings, i.e., EPCC contract and concession fees, for PESTECH. At current construction period, PESTECH is likely to see YoY higher revenue with higher MI as well in coming quarters until the project is completed.

Delayed job claims in 2HFY20 should boost forward earnings. 2HFY20 results were weak due to low billings with claims now likely to be pushed forward to FY21 with the easing of COVID-led lockdowns locally as well as overseas. Besides, key local projects namely MRT2 and KVDT as well as the Cambodian Tatay project are advancing to higher stages which mean better margins in the coming quarters. In addition, the construction profit from ODMPCL should boost earnings further in the next two years. Meanwhile, its current order-book at RM1.50b from RM1.67b three months ago will keep them busy for the next two years and sustain earnings growth.

OUTPERFORM maintained. While keeping FY21-FY22 estimates, FY21 NDPS is assumed at 1.0 sen from nil following the declaration of two 0.5 sen special dividends recently. PESTECH has the ability to pay for this dividend distribution of c.RM7-RM8m, based on issued shares of 763.1m, as cash-flow position has improved from the concession incomes of which it received RM11.3m in 1QFY21. We continue to like this niche utility infrastructure play which could potentially benefit from the revival of mega projects domestically and the fast growing energy infrastructure development market in Indochina. Thus, our OP rating is maintained with unchanged TP of RM1.15 based on -1SD 5-year PBV moving average of 3.76x. Risks to our call include: (i) failure to replenish order-book, and (ii) cost overruns.

Source: Kenanga Research - 30 Nov 2020