Kenanga Research retains outperform on Pestech, TP 1.75


  • Analyst Reports
  • Monday, 30 Dec 2019

Under the contract, Pestech will deliver an EPCC work for the existing obsolete 230kV and 69kV electrical equipment including the associated equipment and materials in San Juan, Lumban and Daraga Substations with project durations over 360 to 450 days.

KUALA LUMPUR: Kenanga Investment Bank Research is maintaining an Outperform for Pestech International with a target price of RM1.75.

The company had secured a contract from the National Grid Corporation of the Philippines (NGCP) for the EPCC contract for South Luzon substations upgrading project stage one (San Juan and Lumban Substations) and Stage two (Daraga Substation) for a total contract value of c.RM111.7mil.

The contract consists of: (i) offshore portion of US$16.64m, and (ii) onshore portion of 528.8m pesos.

Under the contract, Pestech will deliver an EPCC work for the existing obsolete 230kV and 69kV electrical equipment including the associated equipment and materials in San Juan, Lumban and Daraga Substations with project durations over 360 to 450 days.

“We are positive with this win which is another major power infrastructure project awarded by NGCP hot on the heels of the Cebu-Bohol 230kV Interconnection project clinched by Pestech on Dec 12.

“This RM112m project forms part of the major power infrastructure upgrading undertaken by NGCP in its efforts to replace and upgrade the reliability of the power infrastructure in Philippines to support robust growth.

“With these two major Filipino contracts coupled with the ADB-funded contract secured in PNG the week before, Pestech proved that it possesses the capacity and ability to provide and deliver products and services at the international level, ” it said.

Kenanga Research said this was its third contract win in three weeks and is also the fourth project win for FY20, totalling YTD contract win to RM314.4mil against its targeted order-book replenishment of RM750m.

“We believe the contract flow will not stop here, ” it said.

Just two weeks ago, Prime Minister Tun Dr Mahathir Mohamad said that the KL-Singapore HSR is to go ahead albeit at a lower cost.

As such, there are at least four mega transportation infrastructure projects, namely HSR, KVDT2, LRT3 and ECRL, in the near term for PESTECH to bid for in the rail electrification packages.

Meanwhile, Pestech’s current order-book of RM1.7b will support earnings growth for the next two years.

“Still an attractive alternative utility play; Outperform maintained. Although share price has risen 37% YTD, we believe the market has yet to appreciate the growth potential in this stock, given the earnings growth potential of 26%/14% which imply decent PER of 11x/10x for FY20/FY21.

“For now, we keep our estimates unchanged. We continue to like this niche utility infrastructure play which could potentially benefit from the revival of mega projects domestically and the fast growing energy infrastructure development market in Cambodia.

“As such, we also maintain our outperform rating and target price of RM1.75/SoP share. Risks to our call include: (i) failure to replenish order book, and (ii) cost overruns, ” it said.


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