PESTECH has bagged a milestone cross-border rail electrification project - the 4km RTS link between Malaysia and Singapore for a contract value of RM65m. Securing this project signifies its technical capability in delivery full EPCC project as per international standards. As such, we continue to like this niche utility infrastructure play. Maintain OP with unchanged TP of RM1.46

Secured RTS rail electrification contract. Yesterday, PESTECH announced that its wholly-owned subsidiary Pestech Technology Sdn Bhd received a Letter of Acceptance from RTS Operations Pte Ltd for the contract for the EPCC works of Traction Power Supply of Rapid Transit System (RTS) Link Assets for the 4km RTS link between Malaysian and Singapore at a total contract value of RM64.95m. The project shall commence immediately with targeted completion by Sep 2026.

A milestone project. Although the project value of RM64.95m is not big, this open-bidding project win signifies the recognition of PESTECH’s capability in delivering full EPCC in a cross-border rail electrification project and is a good reference for future bidding for overseas projects. As such, we are positive on this win which tallies its YTD total contract wins to RM335m officially for FY21 on top of its outstanding order-book of RM2.2b as at Feb 2021, which will keep them busy till 2026 with the majority of completion timeline scheduled for the next 2-3 years. However, we keep our FY21-FY22 estimates unchanged.

Looking to a seasonally stronger 2HFY21. With its technical capability coupled with past contract references, PESTECH is still actively bidding for power infrastructure projects, including rail electrification jobs, both in local and overseas markets. Having said that, its current contracts in hand will keep it busy for the next 2-3 years. Meanwhile, it is in the seasonally strong 2H period especially in Cambodia as work progress will speed up during the dry season there. Besides, key local projects namely MRT2 and KVDT as well as the Cambodian Tatay project are advancing to advanced stages which mean better margins in the coming quarters.

Maintain OUTPERFORM. We continue to like this niche utility infrastructure play which could potentially benefit from the revival of mega rail electrification projects domestically and the fast-growing energy infrastructure development market in Indochina. Thus, we keep our OUTPERFORM rating on the stock with unchanged target price of RM1.46 based on 3-year PER mean of 13.8x. Risks to our call include: (i) failure to replenish order-book, and (ii) cost overruns.

Source: Kenanga Research - 18 May 2021