We are positive on Pestech International Bhd’s (“Pestech”) earnings growth given its market position as a niche utility infrastructure builder with strong regional presence as well as solid orderbook of RM1.63bn. BUY with a target price of RM1.66 premised on 14x PER FY20 as per the average of closest industry players.

Pestech as an integrated electrical power technology company is principally involved in the provision of engineering, design, manufacturing, installation and commissioning of electrical power facilities. The company is into power transmission infrastructure (eg: high voltage substations), power generation and rail electrification, transmission asset as well as power distribution and smart grid that require highly specialised technical skill and experience of which Pestech has proven its capabilities with an established track record. Pestech’s competitive strength lies on its niche utility infrastructure business model, operating in a high entry barrier industry which requires high investment and strict industry regulations.

Pestech has an orderbook of RM1.63bn providing earnings visibility for the next two years. With regional presence in 20 countries, Pestech is also an independent power transmitter in Cambodia via a 25-year concession to operate a power transmission system. The group is also one of the most wellequipped rail electrification and track work contractor in Malaysia, enabling it as a potential beneficiary for railway contracts (ECRL & KVDT Phase 2) as Pestech has previously secured project from MRT2 and KVDT Phase 1.

Since its listing in year 2012, Pestech has been growing steadily in term of financial, it has recorded a compounded annual growth rate of 29% in both revenue and net profit for the past 7 years. Currently trading at a PE of 12.0x, it is below its historical 3-year average mean of 15.8x. Given Pestech’s proven expertise in utility infrastructure and its exposure in the fast-growing ASEAN regions, we are positive on its business development and expect net profit to grow 13.2% and 16.2% in FY20 and FY21 respectively.

Source: Rakuten Research - 17 Sept 2019