PESTECH has won its 6th contract from NGCP of the Philippines, which is worth RM157m, showing the latter’s confidence in PESTECH. There are vast opportunities there, where 30% of the population are still without access to electricity supply. In all, we still like the stock as a niche utility infrastructure play. Keep OP at TP of RM1.39.

Clinched another NGCP contract worth RM157m. Yesterday, PESTECH announced that its wholly-owned subsidiary Pestech Sdn Bhd has received a Notice of Award from National Grid Corporation of the Philippines (NGCP) for the South Luzon Substations Upgrading Project for a total value of c.RM157m comprising: (i) offshore portion of USD23.46m, and (ii) onshore portion of PHP710.76m. Under the contract, PESTECH will deliver EPPC works involving seven substations with project duration ranging 180 day to 600 days.

First contract announcement for FY22. We are positive with this win which shows NGCP’s confidence in PESTECH’s ability to deliver the project as it is the 6th contract that PESTECH has secured from NGCP since 2016. Pre-tax profit margin for this new contract is still within 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.

A seasonally weaker 1HFY22 especially in Cambodia which is facing raining season, deterring project progress. Nonetheless, the upcoming 1QFY22 which likely to be announced by the end of this week, would see a comparable YoY results (RM17.4m core profit in 1QFY21) but a sequentially weaker results from the seasonally strong 4QFY21 core profit of RM31.2m. Meanwhile, this new RM157m contract should boost its order-book which stood at RM1.82b as at end-Jun, keeping them busy for the next two years and sustaining earnings growth.

OUTPERFORM maintained. 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. As such, we continue to rate the stock an OUTPERFORM with unchanged target price of RM1.39 which is based on 3-year moving mean of 14x FY22E PER. Risks to our call include: (i) failure to replenish order-book, and (ii) cost overruns.

Source: Kenanga Research - 23 Nov 2021