Although  Pestech’s MYR18.6m 9MFY13 PBT accounted for only 70% of our full-year estimate, we deem the company’s  YTD performance in line with our expectations,  as its revenue tends to fluctuate according to  the  progress billings of its projects. Overall, Pestech reported a good  set  of  9MFY13  results,  primarily  due  to  higher  billings  from  local  projects  in  the  Sarawak  Corridor  of  Renewable  Energy  (SCORE) region. The company has also proposed a single-tier interim dividend of 4 sen per share. We are revising our FY13F/14F dividend forecast to 10 sen/12 sen, which translates into dividend yields of 4.2%/5.1%. Pestech’s outlook remains bright, underpinned by: i) its strong MYR330m orderbook  as  at  end-September,  ii)  the  bright  outlook  for  the  power  transmission  industry,  and  iii)  its  expansion  plan  in  the  productmanufacturing segment. We maintain our BUY call and MYR2.82 FV, pegged to an unchanged target FY14 P/E of 10x.

Impressive results.  Despite Pestech’s  9MFY13 PBT of MYR18.6m accounting for only 70% of our full-year estimate, we deem  the company’s YTD performance in line with our expectations.  We are maintaining our forecasts,  as its revenue tends to fluctuate according to its projects’ progress billings.  Overall,  Pestech reported a good set of 9MFY13  results, with net profit  rising  88% y-o-y on the back of  a  42% increase in revenue.  EBIT margin also improved to 17% from 13.8%  in 9MFY12.  The better results were due to higher billings from local projects in  the SCORE region. On a quarterly basis, 3QFY13 results were generally higher, with revenue rising 29% q-o-q to MYR53.7m, while its MYR8.5m PBT was up by 25% q-o-q from MYR6.8m  in 2QFY13.  The improvements were mainly due to higher profit recognition from  Pestech’s  projects and increased contribution from third-party sales, which grew 77% q-o-q to MYR6.2m.

Higher dividend forecasts.  Pestech has proposed a single-tier interim dividend of 4  sen per share. Adding to its first interim dividend of 3 sen per share, the company has announced a total dividend distribution of 7 sen so far this year. We are revising our FY13F/14F dividend forecasts to 10 sen/12 sen from 8 sen/9 sen previously. This will translate into dividend yields of 4.2% and 5.1% for FY13F and FY14F respectively.

Plenty  of  opportunities  in  East  Malaysia.  Currently,  Pestech  has  three  ongoing  projects  in  Sarawak  with  combined  contract  value  of  over MYR200m. In September, it received  another  contract  worth  MYR95.6m from Sarawak Energy to build a 275/33  kilovolt  substation in Sibu.

During the recent 2014 Budget announcement, the  Government emphasised its focus to ensure uninterrupted electricity  supply in Sabah and Sarawak. Among the projects proposed in the Budget  speech were the upgrading of the Tenom Pangi hydropower station, the construction of the  Kimanis  electricity  transmission  lines  and  the  building  of  a  main  switch  station  in  Sandakan.  Being  an  established  power  transmission systems  specialist,  we  believe  that  Pestech  stands  a  good  chance  of  winning  more  bids.  As  at  end-September,  the  company  was  able  to replenish its total orderbook to MYR330m.

Maintain  BUY,  with  MYR2.82  FV  unchanged.  Overall,  Pestech’s  fundamentals  remain  intact.  We  still  like  the  company  for:  i)  its  strong MYR330m  orderbook  as at end-September,  ii)  the  bright  outlook  of  the power transmission industry  that  will  further  boost  the company’s growth,  and  iii) its  collaboration with ABB Malaysia SB  that will facilitate its  expansion into  switchgear  manufacturing.  We maintain  our  BUY call and MYR2.82 FV, pegged to an unchanged target FY14 P/E of 10x.

Source: RHB