Electrifying Times Ahead

Pestech has secured a USD16.6m job from Metix Malaysia SB (Metix) to build a 132/33/11kV integrated power distribution system including substations for Sakura Ferroalloys SB (Sakura) in Samalaju Industrial Park (Samalaju). This will boost its orderbook to over MYR390m. The company’s tenderbook to date is worth MYR1.3bn. With an expected hit rate of 20%, we expect the company to replenish its orderbook by MYR260m in the next two years. We continue to like Pestech’s: i) strong MYR390m orderbook as at 28 Nov 2013, ii) growing energy demand worldwide, and iii) expansion into switchgear manufacturing. We upgrade our FV to MYR3.12 from MYR2.82, pegged to its FY14 EPS and an unchanged target P/E of 10x. The counter is trading at a low 3-year average P/E to growth (PEG) ratio of 0.3x. Maintain Buy.

Wins USD16.6m Samalaju job. The company has secured another contract in Samalaju in Bintulu from Metix. The project, worth USD16.6m, is to build a 132/33/11kV integrated power distribution system, including substations for the Sakura Ferroalloys SB (Sakura) smelting plant - a joint-venture between Assmang Ltd, Sumitomo Corp and China Steel Corp – for which Metix is the main contractor. Pestech will commence work on the 18-month contract work on 28 Nov 2013.

Record orderbook exceeds MYR390m. Pestech has four on-going projects in Sarawak - one contract each from Asia Cement and OM Materials in Samalaju and two jobs from Sarawak Energy to construct a 275/33kV substation in the Murum Junction project and another 274/33kV in Mapai. The newly awarded contract from Metix will boost the company’s orderbook to more than MYR390m. Pestech is actively tendering for new projects locally and overseas. As at end-September, the company’s tenderbook totalled MYR1.3bn, with the bulk coming from various industry owners (42% of total tenderbook), local utility companies Tenaga Nasional and Sarawak Energy (24%), and South-East Asia (SEA) and Africa (34%). Based on an expected success rate of 20%, we see the company replenishing its orderbook by MYR260m in the next two years.

Placement of 10% of shares fixed at MYR2.70 apiece. In a separate announcement, Pestech announced that the share placement price for the 5m shares was fixed at MYR2.70 per share. According to the management, the company has identified an institutional fund for the 5m shares. The issue price represents a 8% premium to the stock’s 5-day volume weighted average market price of MYR2.50.

Building a strong presence. Pestech has over the years grown from a small company trading in electrical equipment to a one-stop power transmission system service provider with the capability to provide comprehensive power systems engineering and technical solutions to utility companies and industrial plants locally and overseas. Besides securing more local jobs, particularly in Sarawak, the company is also expanding its foothold in the SEA region, particularly Laos, Cambodia and Philippines. That said, Pestech is set to spread its wings further to Sri Lanka, Papua New Guinea and Africa to seek more opportunities.

Maintain BUY, with MYR3.12 FV. Overall, we remain positive on the company’s prospects, underpinned by its: i) MYR390m-strong orderbook as at 28 Nov 2013, ii) growing energy demand worldwide, and iii) expansion into switchgear manufacturing. We maintain our BUY call, with a higher FV of MYR3.12 (from MYR2.82), pegged to an unchanged target P/E of 10x. That said, our TP may potentially be diluted to MYR2.90 post placement. This valuation is reinforced by expectations of Pestech securing a bigger orderbook in the next two years, with its YTD MYR390m orderbook being a record high since its inception. The counter is trading at a low 3-year average P/E to growth (PEG) ratio of 0.3x.

Source: RHB