Potentially More Projects in Laos

Pestech has signed a memorandum of understanding (MoU) with Xang Kham Construction Building Road and Bridge Import Heavy Machine Co Ltd  (Xang Kham) to undertake an initial  feasibility study for a 500 kilovolt (kV) transmission line job in Laos. If successful, this will  be the company’s second job in that country. While we are making no changes to our forecast for now, we are optimistic that the contribution will be positive  to  Pestech’s  FY15-16 performance.  Hence, we are reiterating our BUY  call,  with an unchanged MYR2.82 FV, pegged to a target P/E of 10x. This still represents a  3% dividend yield at our FV. Pestech had a MYR330m-strong orderbook as at end-September. We still like the company’s robust orderbook, aggressive business expansion and growing business opportunities in the local and overseas markets.

Signs  MoU  for  a  500kV  transmission  line  in  Laos.  Pestech  has  entered  into  an  memorandum  of  understanding  (MoU)  to  form  a  nonincorporated joint venture with Xang Kham Construction Building Road and Bridge Import Heavy Machine Co. Ltd (Xang Kham) to u ndertake the initial feasibility studies for the planning, design, implementation  of a 500kV transmission line development in Bokeo Province in Laos. The project comprises two sections measuring about 120km each, to be granted by Electricite Du Laos (EDL).

Potentially more  jobs  in Laos.  If successful, this would be  Pestech’s  second project in Laos.  The  first contract in Laos  is a  USD29.3m  job  to construct a 115kV double-circuit transmission line from Pakse  in  Laos to the Laos-Thai border.  The scope of work involves the installation of  a 115kV overhead transmission line (about  40km in length) linking Bangyo S/S in Pakse and Sirindhorn S/S  at the Laos-Thai border to maximise the power transfer capacity between the two countries.

MYR330m orderbook  as at end-Sep 2013.  As at end-September 2013, the company’s orderbook  stood at  MYR330m. As the MoU is for both companies  to  carry  out  feasibility  studies  on  the  potential  job  of  500kV  transmission  line,  there  are  no  details  on  the  contract  value  nor execution period.  Hence, we maintain  our forecasts for now.  Nevertheless, given the  broad  scope of works  spanning 240km,  we believe the contribution would be meaningful for Pestech’s FY15-FY16 performance. 

Maintain  BUY,  with MYR2.82  FV.  The company  has once again proved that it is able to capitalise on opportunities in South-East Asia. Pestech is gradually becoming a regional player in power transmission systems. We reiterating our Buy call, with an unchanged FV of MYR2.82, pegged to an unchanged target P/E of 10x,  which still represents a  yield  of  about 3% at our FV.  We like the company’s  aggressive  expansion in  both local and overseas businesses,  with its earnings growth backed by  a strong orderbook and  vast  growth potential in the developing countries, where there is a growing need to ramp up electricity supply.

Source: RHB