Pestech saw seasonally weaker 1QFY13 results, with revenue of MYR24.3m accounting for only 13.5% of our full-year estimate due to lower sales  recognition  on  certain  projects.  The  company  has  secured  a  total  orderbook  of  MYR237.1m  as  at  end-March  2013.  We  believe  the company stands a good chance of securing more jobs. It declared a final single-tier dividend of 2.0 sen, bringing total dividend to 7.7 sen for FY12. All in, we continue to like Pestech as a one-stop power transmission system service provider  as well as for the bright sector growth outlook  as  more  power  infrastructure  is  needed.  We  are  leaving  our  FY13  projections  unchanged  and  rolling  forward  our  valuations  to FY14F. We raise our FV to MYR2.80, based on an unchanged target P/E of 10x. Maintain BUY.  
 
Lower  sales  recognition  on  some  projects  at  initial  stages.  While  Pestech’s  1QFY13  revenue  of  MYR24.3m  accounted  for  only  13.5%  of  our full-year target, we are maintaining our forecasts for now as its revenue tends to fluctuate according to its projects’ progress billing. During the quarter  under  review,  the company’s  projects  are  mainly  at  the  civil  construction  and  engineering  phases  that  generally  have  lower  sales recognition. We should see greater sales recognition in the coming quarters. 1QFY13 revenue was 6.4% lower y-o-y compared with MYR25.9m in 1QFY12. Its project segment, however, saw 1QFY13 revenue surging 28.5% y-o-y to MYR21.9m, due to higher billings from local projects.  
 
Healthy orderbook, more in the pipeline. As at end-March 2013, Pestech has secured a total orderbook of MYR237.1m. We understand that the company is still  in talks with Laos’s partners. Given  its  expertise in the  power transmission system industry, we  believe Pestech stands a good chance of clinching the contract. On the home front, given its credibility in the local market – It has secured two contracts in the Sarawak Corridor of Renewable Energy (SCORE) besides having a long working relationship with Tenanga Nasional Bhd – we think that the company is poised to obtain more jobs from local clients.   
 
Final  dividend  of  2.0  sen  for  FY12.  The  company  proposed  a  single  tier  final  dividend  of  2.0  sen  per  share  for  FY12.  Adding  to  its  single  tier interim dividends of 5.7 sen per share, its total DPS of 7.7 sen exceeded our initial projection of 7.0 sen. We are maintaining our FY13F & FY14F DPS projections of 8.0 sen and 9.0 sen respectively, with a projected payout ratio of more than 30% of net profit.  
 
BUY, MYR2.80 FV. We continue to like Pestech for its bright growth prospects in the local and overseas markets. Fundamentally, its orderbook remains  healthy,  with  potential  to  secure  more  contracts  from  developing  countries  in  need  of  more  power  infrastructure  developments. Pestech’s closing price of MYR2.30  yesterday  (a  30%  surge  since  our  initiation  in  April)  almost  reached  our  target  price  of  MYR2.33.  We  are leaving  our  FY13  projections  unchanged  and  rolling  forward  valuations  to  FY14F.  All  in,  we  lift  our  FV  to  MYR2.80,  based  on  an  unchanged target P/E of 10x. Maintain BUY. Pestech’s gearing ratio of 10.9% (as at end-March 2013) is still at a manageable level.

Source: RHB