PESTECH has won yet another project from the Philippines National Grid Corporation of the Philippines (NGCP) worth RM104m. Being the 5th win from NGCP, this goes to show the confidence the Filipino entity have in PESTECH. There are vast opportunities there, where 30% of the population are still without access to electricity supply as well as from a potential rail electrification project in Luzon. The stock is still attractive post rally of late, trading at 1.5SD below 5-year PBV mean. Maintain OP at TP of RM1.15.

Bagged RM104m Filipino project. Yesterday, PESTECH announced that its wholly-owned subsidiary Pestech Sdn Bhd has accepted a Notice of Award from NGCP for an EPCC contract for the substation portion of the Nabas-Caticlan-Boracay 138kV transmission line project for a total value of c.RM104m comprising: (i) offshore portion of USD15.56m, and (ii) onshore portion of PHP483.306m. Under the contract, PESTECH will deliver a new Boracay substation and an expansion of the existing Nabas substation with project duration over 420 days.

5th NGCP contract. We are positive with this win which shows NGCP’s confidence in PESTECH’s ability to deliver the project as it is the 5th contract that PESTECH secured from NGCP since 2016. Pre- tax profit margin for this new contract is still within between the 9% and 11% range. We see vast potential in the Philippines for transmission line and substation EPPC projects as 30% or 28m of its population are still without access to electricity supply, and there is opportunity in a rail electrification project in the country as well in which PESTECH is participating in the tender for the 38km North- South Commuter Railway for the south Luzon portion with contract value of RM400m.

Four potential rail electrification projects in the region. Besides the abovementioned Filipino projects, there are three other potential rail electrification projects available for tender i.e. Bangkok’s MRT Orange Line’s rail electrification work, valued at RM500m-RM600m; Taiwan’s 50km Cycle Line’s work, valued at about USD200m and a 4km RTS line for JB side with two stations worth RM40m-RM50m. However, there is no tender update on the local rail electrification projects such as HSR, ECRL and KVDT2. Meanwhile, with this NGCP’s win, order-book is increased to RM1.60b from RM1.50b in Sep which will keep them busy for the next two years and sustain earnings growth.

OUTPERFORM maintained. Share price has rebounded strongly by 40% from the recent low of RM0.68 in early Nov, which we believe was due to investors buying on weakness. Even at current price, the stock is trading attractively at 1.5SD below 5-year PBV mean of 1.21x. As such, we maintain our OUTPERFORM rating with unchanged target price of RM1.15 which is based on 1SD below 5-year PBV moving average of 1.69x. We continue to like this niche utility infrastructure play which could potential benefit from the revival of mega projects locally and the fast growing energy infrastructure development market in Indochina. Risks to our call include: (i) failure to replenish order-book, and (ii) cost overruns.

Source: Kenanga Research - 9 Dec 2020