AS a niche utility infrastructure company with strong expansion plans, Pestech International Bhd is an alternative small-cap play to the domestic utility sector.
It is also a cheaper proxy to the other “big boys” in the sector, judging by forward valuations as compiled by Kenanga Research.
Pestech, which has been deriving its revenue almost entirely from Malaysia and Cambodia, is seeking a bigger presence in the high-growth South-East Asian region.
To achieve this, the group aims to capitalise on the robust demand for power infrastructure in countries like Cambodia, the Philippines and Papua New Guinea.
Given its proven track record of commissioning over 565km of electric transmission lines and cables, Pestech should find it well-positioned to bid for such regional projects.
Pestech, whose shareholders include Norges Bank or the manager of Norway’s Pension Fund, is also going big into the rail electrification business regionally.
Apart from Malaysia, it is already eyeing regional rail projects in Asean, leveraging on the group’s existing full fleet of rail electrification plants and machineries.
In Malaysia, Pestech has been involved in the Gemas-Johor Bahru Southern double track project and the Mass Rapid Transit Line 2.
Hong Leong Investment Bank (HLIB)Research has previously said that Pestech has “good chances” to secure contracts for upcoming Malaysian mega-rail projects such as MRT Line 3, the East Coast Rail Link, the high-speed rail and the Klang Valley Double Tracking (Phase 2).
The power infrastructure and rail electrification segments contributed 61% and 35% of Pestech’s revenue in the financial year ended June 30, 2021 (FY21), respectively.
Going forward, Pestech also hopes to take advantage of the growing opportunities in the renewable energy (RE) and electric vehicle (EV) infrastructure segments regionally.
In its 2021 annual report, the group said it wants to venture further into the area of photovoltaic solar generation, waste-to-energy, sustainable mobility solutions and autonomous non-fossil fuel based distributed microgrid power supply solutions.
It is noteworthy that Pestech’s work for its first large-scale photovoltaic solar plant (LSS) of 20MW located in Bavet City, Svey Rieng Province, Cambodia, has started.
Pestech’s aim to leverage on RE opportunities came at the right time, as Asean targets to achieve a RE capacity of 35GW to 40GW by 2025.
On the EV infrastructure front, Pestech is looking at providing EV charging stations in commercial buildings, condominiums and along the highways.
HLIB Research has previously said that Pestech’s venture into EV infrastructure bodes well with Malaysia’s Low Carbon Mobility Blueprint 2021-2030 to accelerate national EV adoption rate.
In FY21, Pestech reported double-digit growth in both revenue and bottom line, despite the Covid-19-related challenges.
Revenue hit a record high as it grew by 11.5% year-on-year (y-o-y) to RM889mil, while net profit expanded by almost 29% y-o-y to RM66.2mil.
Profit margin in FY21 also improved to 12%, as compared to 8% in the previous financial year.
Moving forward, the group is well positioned to sustain its financial performance momentum, backed by its outstanding order book of RM1.76bil as at June 30, 2021.
“The contribution of the order book continued to be diversely generated from among the Asean region in line with the strategy of the group to have a well-spread business exposure in this geographical area,” it said in the annual report.
Since the beginning of 2020, Pestech has secured five contracts cumulatively worth RM438.61mil, which include a traction power supply contract for the Malaysia-Singapore Rapid Transit System.
Recently, Pestech won a RM157mil contract from the National Grid Corp of the Philippines (NGCP) for the South Luzon Substations upgrading project.
Under the contract, the group will deliver engineering, procurement, construction and commissioning (EPCC) works involving seven substations, with project duration ranging from 180 to 600 days.
It is noteworthy that this is Pestech’s sixth contract from the NGCP since 2016.
Kenanga Research analyst Teh Kian Yeong is positive about the contract win and sees the award as a sign of NGCP’s confidence in Pestech to deliver the project.
“Pre-tax profit margin for this new contract is still within the 9% and 11% range.
“We see vast potential in the Philippines for transmission line and substation EPPC projects, as 30% or 28 million of its population are still without access to electricity supply,” he says in a note issued on Nov 23.
Looking ahead, Teh expects a “seasonally weaker” first-half of FY22. This is especially in Cambodia, which is facing a rainy season, deterring project progress.
“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 Indo-China.
“As such, we continue to rate the stock an ‘outperform’ with an unchanged target price of RM1.39,” says Teh.
Yesterday, Pestech reported that its net profit for the first quarter of FY22 ended Sept 30 fell by 21.2% y-o-y to RM11.87mil.
Revenue dropped by 16.5% y-o-y to RM207.81mil.
“The group’s revenue reflects the stage of project progress during the quarter under review”, says Pestech.