Pestech’s 60%-owned subsidiary, Diamond Power Ltd (DPL), has entered into a power transmission agreement (PTA) for a 25-year concession of the 230kV Kampong Cham-Kratie transmission system project. Maintain NEUTRAL with a higher TP of MYR5.04 (6% downside), pegged to higher 2016F P/E of 19x. No changes to our forecast, the acquisition is expected to be completed by 2017.

A 25-year concession. Pestech International’s (Pestech) 60%-owned subsidiary, Diamond Power Ltd (DPL), has entered into a PTA with state-owned energy supplier Electricite Du Cambodge (EDC) for the development of a 230 kilovolt (kV) Kampong Cham-Kratie transmission system project on a build-operate-transfer basis. Total investment cost is estimated at USD92.2m. Pestech had previously completed and delivered the Kampong Cham transmission system project in 2014. With this PTA, Pestech would become an independent power transmitter on a concession basis. The power transmission charges to be paid by EDC to DPL will be as follows: i) first 1-3 years: USD12.3m per annum, and (ii) subsequent 4-25 years: USD18.3m per annum.

Strong and stable recurring income. Pestech has been generating over 90% of its revenue from engineering, procurement and construction (EPC) projects, with limited recurring income. We expect this PTA to generate strong and stable recurring income to the company from FY18 onwards.

Maintain NEUTRAL with a higher TP of MYR5.04 (from MYR4.51). As the acquisition of asset would only be completed by 30 Nov 2017, we make no changes to our forecasts. Maintain NEUTRAL with a higher TP of MYR5.04 (6% downside), pegged to 2016F P/E of 19x.