Pestech  has  won  a  second  Cambodian  contract  (worth  USD86.1m)  for  a  198km  transmission  line  that  connects  West  Phnom  Penh  and Sihanoukville, as  well  as a job to extend the  Stung Hav substation.  We believe that Pestech is  building its reputation  in Cambodia after delivering  its first project eight months early. This  new  contract  boosts its  total  orderbook  to  MYR708m.  We raise  our  FY14  revenue and earnings  forecast by 1% and 7% respectively after imputing profit recognition from the new contract. We continue to like the company for: i)  its  healthy  MYR708m  orderbook  (as  at  10  March),  ii)  growing  demand  for  energy  worldwide,  and  iii)  its  expansion  into  switchgear manufacturing.  As such, we upgrade  our FV to MYR4.05  from MYR3.80, pegging its FY14 EPS to an unchanged  target P/E of 12x. Although we are upbeat on the announcement, we are maintaining our NEUTRAL call on Pestech due to limited price upside.

Secures  USD86.1m Cambodia contract.  Pestech has announced  on Bursa Malaysia yesterday  that it has won  an  USD86.1m contract from  a Cambodian  company,  Alex  Corporation  Co  Ltd  (ACCL),  which  involves  works  to  design  and  build  a  230  kilovolt  (kV)  West  Phnom  Penh–Sihanoukville transmission line and  a  230/115/22kV substation project. Pestech will upgrade the existing Stung Hav substation by equipping two units of 230kV outgoing transmission line bays. The transmission line has   a  total length of approximately 198km that would connect the substation to  West Phnom Penh. Works are  expected to commence within three months from 10 March  2014,  and it will take 32 months to complete the project. With the inclusion of this contract, the company’s orderbook increases significantly to approximately MYR708m.

Brief background of ACCL.  According to  news from  The Phnom Penh Post  on 28  Oct 2013,  ACCL is a private company that has  entered into a public-private  partnership  with  the  Cambodian  government  to  develop  power  lines  from  plants  in  the  Preah  Sihanouk  province  to  Phnom Penh. ACCL will invest USD119.1m in a build-operate-transfer agreement to construct and run the infrastructure  before handing it over to the government at the end of a 25-year lease.

Growing  reputation in Cambodia.  The USD86.1m contract is Pestech’s  second project in Cambodia. Its first project involves the development of  a  230kV Phnom Penh–Kampong Cham transmission  line  that was completed in June 2013. Pestech managed  to deliver the project eight months ahead of schedule. We believe that, via its first project, it  managed to gain trust from Electricite du Cambodge (EDC), a 100% stateowned company responsible for the generation, transmission and distribution of power supply throughout Cambodia. Maintain NEUTRAL, with  a MYR4.05  FV.  We remain optimistic on the company’s outlook, underpinned by:  i)  its  strong  MYR708m orderbook as  at  10  March  2014,  ii)  growing  energy  demand  worldwide  that  would  further  provide  opportunities  to  the  energy  transmission  system industry,  and iii)   the company’s  diversification into  switchgear manufacturing. We have  tweaked our FY14 forecasts higher, with revenue and net profit forecasts up by 1% and 7% respectively after imputing the contribution from this newly-awarded contract. We have derived a higher FV of MYR4.05  (from MYR3.80), pegged to an unchanged target  P/E of 12x, which is still below its highest P/E of  14.5x since listing.  Although we  are  upbeat  on  the  announcement,  we  are  maintaining  our  NEUTRAL  call  on  Pestech  due  to  limited  price  upside.  Pestech’s  valuation  is justified  by  the  expectations  over  its  ability  to  secure  bigger  orders  in  the  next  two  years.  Its  orderbook  is  currently  at  a  record  high  of MYR708m.

Source: Kenanga