Technical | Fundamental Analysis Discussion Stocks Listed In Bursa

Wednesday, June 5, 2013



Single Tier Final Dividend 2.0 Sen

Pestech International Bhd - A Proxy To Malaysia’s Power Infrastructure Developments

Our recent meeting with Pestech’s Management reinforces our positive view on the company. In this report, we review some of its key projects and also talk about its future prospects. Pestech is tapping on infrastructure activities in various development regions in Malaysia and has secured its first solar power-related project in Gebeng. The contract value, although small, will pave the way for Pestech to participate in more solar power-related projects in the future. We maintain our Buy call, with a RM2.80 FV, pegged to 10x the stock’s projected FY14 P/E.

5 major projects in hand. As at end-March, Pestech has 11 projects in hand with a total value of MYR392.9m. Of these, five are major projects in Johor, Sarawak and West Africa, which together make up 65.8% of Pestech’s overall contract value and will last the company for the next two years. Getting a slice of the action in development regions. Of the five major projects in hand, four are local projects related to various development regions being rolled out by the Government. Besides securing contracts from OM Materials Holdings and Asia Cement Co Ltd in the Sarawak Corridor of Renewable Energy (SCORE), Pestech is also building: i) a 275/33kV substation under a contract from Sarawak Energy Bhd (SEB); ii)the Pencawang Masuk Utama (PMU) 132/33kV Financial Centre Substation project in Nusajaya, Johor – to supply electricity within Iskandar Malaysia’s Flagship B Zone; iii) to extend Tenaga Nasional Bhd (TNB)’s existing 132kV substation at Teluk Ramunia; and iv) the infrastructure to generate 90 MVA

In the area of solar power, Pestech has bagged a project from Petronas Power SB (PPSB) for the engineering, procurement and construction (EPC) of a 33kV interconnection transmission line and underground cables from the PPSB Gebeng Solar Independent Power Plant (IPP), a utility-scale 10.02MW IPP in Gebeng, Kuantan, to TNB’s PMU at Gebeng Industrial Estate to facilitate grid connection. This is part of Petronas’ initiative to explore opportunities in green and renewable energy. Despite the relatively small contract value of MYR1.2m, this project will open the door for Pestech to participate in future solar power-related projects. VAR agreement with Siemens. Meanwhile, Pestech has via Siemens Malaysia, also sealed a value added reseller (VAR) agreement with Siemens Germany in relation to its energy automation products. This will give the company access to Siemens’ product training as a system integrator and pick up knowhow and be updated on Siemens’ new energy automation products.

Siemens globally as an approved system integrator, as it would have the competence to upgrade or extend any existing Siemens system solutions in the region. BUY, MYR2.80 FV. We like Pestech’s exposure to the growing demand for power, its own organic growth as it rolls out new products, as well as the potential of its collaboration with Siemens enhancing its position as an integrated power transmission system provider in Malaysia and the Asian region. We maintain our BUY call on Pestech, with a MYR2.80 price target, pegged at a P/E of 10x.