PESTECH has secured its first contract in 2018, worth RM58m, to build a substation near Bintulu for SESCO. Despite the slow contract flow, its existing order-book should keep it busy for the next 2-3 years. BUY with TP at RM2.15. We like this niche utility infrastructure play for its earnings growth story. In fact, its valuation is no longer excessive following the lacklustre share price performance in the past two years despite strong earnings momentum.
PESTECH via its wholly-owned Pestech Sdn Bhd has accepted a Notification of Award from Syarikat SESCO Bhd, a subsidiary of Sarawak Energy Bhd for the Sibiyu 132/33kV substation project in Kemena Land District for a contract amount of RM57.95m. Once completed, the project is expected to provide the essential 132kV power injection into the city of Bintulu. The project will start on 3 Sep for a period of 28 months.
Since the last contract win of RM106m in mid-Dec 2017, PESTECH had not secured any new contract and this is the first contract in both 2018 and FY19. Although there is lack of contract flow, PESTECH has been busy with its current order-book and we are not worried with its FY19 profitability, as based on billing progress it should be able to meet our earnings estimates. Meanwhile, its current order-book is estimated at RM1.57b which should keep it busy for at least the next 2-3 years.
With the cancellation of East Coast Rail Link (ECRL), the KL-Singapore High Speed Rail and Gemas-JB double track projects are the only two major electrification projects locally for PESTECH to participate. On the other hand, as the government is looking to upgrade the existing East Coast KTM line to replace the cancelled ECRL project, PESTECH should stand a good chance of securing the project based on its track record on the West Coast KTM line.
Source: Rakuten Research - 3 Sept 2018
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