PESTECH and its Japanese consortium partner have won a JICA-funded 230kV underground cable project in Cambodia which is highly positive as this is the first such project in the country. However, this was offset by a contract cancellation in Fiji. Meanwhile, although EV is the investment theme of the day, earnings impact from its EV exposure is insignificant for now. Maintain OP with a higher TP of RM1.46

Secured another contract in Cambodia. Yesterday, PESTECH announced that a consortium comprising its wholly-owned subsidiary Pestech Sdn Bhd and Furukawa Electric Co Ltd of Japan, has received a Notification of Award from Electricite du Cambodge (EdC) for the contract pertaining to the Phnom Penh City Transmission and Distribution System Expansion Project Phase 2(I) – Package 3 at a total contract value of JPY portion of JPY2,219.5m (c.RM85m) and USD portion of USD19.9m (c.RM80m). This is a Japan International Cooperation Agency (JICA)-funded project and the commencement and completion dates of the project will be decided by EdC upon contract negotiation with the consortium.

First 230kV underground cable work project. This project is positive for PESTECH as a good project reference for its successful venture into exporting extra high voltage underground cable design and laying capability outside Malaysia. For PESTECH to secure this first underground cable work in Cambodia, it highlights that PESTECH’s technical ability is well accepted by EdC. Being a JICA project, we believe the USD portion of project value will be executed by PESTECH while the JPY portion is for the Japanese partner. On the other hand, PESTECH also announced the cancellation of a Fiji contract worth FJD34.99m (c.RM70m) (which was secured in Jan 2020) with Energy Fiji Ltd as both parties had mutually agreed to terminate the contract due to non-fulfilment of conditions precedent.

Share price fuelled by EV story. Share price of PESTECH has surged 52% in the past two weeks with investors swayed by the electric vehicle (EV) theme. To recap, PESTECH started its digitalisation technologies in 2018 which offer service of smart meters and EV charging stations. Currently, it is the only non-government body to collaborate with TNBX Sdn Bhd, a wholly-owned unit of

TENAGA (OP; TP: RM12.40) for EV chargers with 18 stations being installed currently. It shares certain revenue from the stations which is immaterial to its earnings. In a counter check with TENAGA, we learned that besides PESTECH, TNBX has also collaborated with Malaysian Green Technology Corp (MGTC) and it has total of 73 EV charging stations at the moment.

OUTPERFORM maintained. Although EV is the theme of the day, the earnings impact is small and unlikely to be significant in the near term as the rollout plan is dependent on TNBX and not PESTECH. We keep our estimates for now as the new EdC contract win is dampened by the cancellation of the Fijian contract. However, we switch back to PER valuation method from PBV as the world is in the vaccination stage which raises certainty of economic recovery. We are now valuing PESTECH based on 3-year PER mean of 13.8x from -1.5SD 5-year PBV mean of 1.21x, deriving a new TP of RM1.46 from RM1.15. As such, PESTECH remains as an OP. Risks to our call include: (i) failure to replenish order-book, and (ii) cost overruns

Source: Kenanga Research - 17 Feb 2021