PESTECH has won its 6th contract from NGCP of the Philippines, which is worth RM157m. 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. BUY with a TP of RM1.39 which is based on 3-year moving mean of 14x FY22E PER. 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.

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 RM98.4m, and (ii) onshore portion of RM58.7m. Under the contract, PESTECH will deliver EPPC works involving seven substations with project duration ranging 180 to 600 days.

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 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 RM1.82bn as at end-Jun, keeping them busy for the next two years and sustaining earnings growth.

Source: Rakuten Research - 23 Nov 2021