We like Pestech’s unique business proposition, as it rides on the fastgrowing regional demand for electricity and rail. Upgrade to BUY (fromTake Profit) with a higher MYR6.90 TP (from MYR5.90, 10% upside) onincreased earnings estimates. Interest in listing its subsidiary on the CSEmay also open room for more business opportunities in Indochina.

Bright prospect. We continue to like Pestech International (Pestech) for being in the right business, and at the right place and time. The robust regional electricity demand certainly bodes well for the company, which continues to solidify its foothold in the region. Separately, Pestech is expanding into rail electrification projects after it bought over certain rail equipment from Balfour Beatty, where we note various opportunities domestically and regionally. Meanwhile, we were surprised by the sharp swing in 2QFY16 (Jun) earnings,where we believe it may have come to an agreement that allowed it to recognise the job awarded by 60%-owned Diamond Power Ltd (DPL).

Forecast and risk. After factoring in the MYR217m job secured from DPL into our model and cutting new order wins moving forward by MYR50m pa, we have revised up FY16-17F earnings by 13.4%/8.5% respectively and cut FY18F earnings by 5%. Major risks include new contract wins falling short of our assumptions while an escalation in input costs would trim margins

Upgrade to BUY. Pestech also announced yesterday its interest to list whollyowned subsidiary Pestech (Cambodia) Ltd on the Cambodia Securities Exchange (CSE). We believe this exercise may help to strengthen its foothold in Indochina where related business opportunities are aplenty. Meanwhile, the company is also aggressively pursuing business opportunities in the Philippines. Therefore, we upgrade the stock back to BUY (from Take Profit) with TP revised up to MYR6.90 (from MYR5.90) based on 19x 2016 F P/E plus DCF of DPL’s transmission concession.