We applaud Pestech’s latest contract win worth MYR134.4m, involvingthe construction of a 500/275kV main ntake substation that will be connected to the single largest transmission system to be ever developed in Malaysia. Maintain BUY, and a MYR6.83 TP (16.8% upside). We continue to like the company’s unique business proposition, as it rides on the fast-growing regional demand for electricity.

First major contract in FY16 (Jun). Pestech has received a letter of acceptance from Tenaga Nasional (TNB MK, BUY, TP: MYR15.53) for a project involving the construction of the 500/275kV Yong Peng East (2x1050 MVA) backbone main intake substation. The project, valued at MYR134.4m, is scheduled to be completed within 1,085 days.

Notable job win. While the project value is within our new orderbook replenishment assumption of MYR300m for FY16, we applaud the win as the substation linking the 500 kilovolt (kV) transmission system will be part of the single largest transmission system to be developed in Malaysia. In the long run, the 500kV transmission lines may be the backbone for inter-regional power transfers and possible interconnections with other systems. Thus, the successful completion of the project would contribute positively to the company’s bottomline withinthe next three years and enhance its accreditation in the industry.

Looking beyond power transmission systems. Separately, Pestech is also keen to expand its foothold in rail electrification projects after it bought over certain rail equipment from Balfour Beatty (BBY LN, NR), as it has noted various opportunities in Malaysia and the region. We understand the company is planning to bid for track-laying projects to expand its offerings within the rail system. Furthermore, it is looking to widen its services in system automation and data management via its technology unit.

Reiterate BUY and a MYR6.83 TP. Aside from the new contract win, we continue to believe that Pestech’s unique business proposition – riding on the fast-growing demand for electricity in the region – justifies its premium valuation vis-à-vis typical utility giants. Using a FY16F P/E of 20x plus the DCF value of its recently-won build-operate-transfer (BOT) transmission system project in Cambodia, we derive a MYR6.83 TP. Maintain BUY.