Pestech wins second contract in Cambodia worth US$86.1m

by **Cals** Wed 12 Mar 2014, 12:37

Business & Markets 2014

Written by RHB Research

Wednesday, 12 March 2014 11:00

Pestech International Bhd
(March 11, RM4.10)
Maintain buy with target price of RM4.05: In an announcement to Bursa Malaysia on March 10, Pestech said it had won an US$86.1 million (RM282.4 million) contract from a Cambodian company, Alex Corp Co Ltd (ACCL), to design and build a 230 kV transmission line between West Phnom Penh and Sihanoukville, as well as a 230/115/22 kV substation.

Pestech will upgrade the existing Stung Hav substation by equipping two units of 230kV outgoing transmission line bays. The transmission line has a length of approximately 198km that will connect the substation to West Phnom Penh. Work is expected to commence within three months from March 10, 2014, and it will take 32 months to complete the project. With the inclusion of this contract, the company’s order book has increased significantly to about RM708 million.

According to a report in The Phnom Penh Post on Oct 28, 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 US$119.1 million 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.

The US$86.1 million contract is Pestech’s second project in Cambodia. Its first project involved 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, the company managed to gain the trust of Cambodia’s Electricite du Cambodge (EDC), a 100% state-owned company responsible for the generation, transmission and distribution of power supply throughout Cambodia.

Maintain “neutral” with target price of RM4.05. We remain optimistic on the company’s outlook, underpinned by: (i) its strong RM708 million order book as at March 10, 2014; (ii) growing energy demand worldwide that will further provide opportunities to the energy transmission system industry; and (iii) the company’s diversification into switchgear manufacturing.

We have tweaked our financial year 2014 ending Dec 31 (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 target price of RM4.05 (from RM3.80), pegged to an unchanged target price-earnings ratio (PER) of 12 times, which is still below its highest PER of 14.5 times since listing. — RHB Research, March 11

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This article first appeared in The Edge Financial Daily, on March 12, 2014.