PESTECH has won its biggest ever contract with a value of RM743m for the KLIA aerotrain project which comes with financing, and O&M services. This is a highly positive win being its first airport train system project which will act as a good reference for future tender regionally. In all, we still like the stock as a niche utility infrastructure play. Keep OP at TP of RM1.11.

Finally, clinched the KLIA aerotrain project. Yesterday, PESTECH’s wholly-owned subsidiary Pestech Technology Sdn Bhd finally secured the long awaited EPCC contract for KLIA’s automated people mover (APM) aerotrain project, to replace the aging aerotrain system, from Malaysia Airports (Sepang) Sdn Bhd at a contract value of RM743.0m. The contract, which is option 2 under the tender, is inclusive of financing plus a 10-year O&M contract and this also explains why the contract value is higher than what market was speculating at RM400m previously.

Its highest ever contract win so far. This is highly positive which adds a new profile to PESTECH and will be a good reference for future airport train system tender regionally. Under the agreement, the EPCC project which uses Bombardier Transportation Technology will commence from March 2022 for three years to March 2025 while the 10-year O&M services will start from March 2025 to Feb 2034. This contract so far is the biggest win for PESTECH since listing and would boost its total order-book from RM1.58b as of Sep 2021 and keep them busy for the next three years.

However, there are no changes to forecasts. While this win tallies FY22 actual order-book replenishment to RM900m which is higher than our new win assumption of RM800m, it is still within our revenue forecast based on project timeline. As such, we are keeping FY22/FY23 earnings estimates unchanged for now. Meanwhile, due to the seasonally weak 1H period, the upcoming 2QFY22 is likely to be a soft quarter like 1QFY22 before the busy 2HFY22. Having said that, a better FY22 is expected as compared to FY21 as its key projects namely ODM and Tatay projects in Cambodia and MRT2 locally are advancing to later stages which mean overall better margins in FY22.

OUTPERFORM reiterated. 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 RM1.11 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 - 28 Dec 2021