More room for Pestech to grow with upcoming tenders

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KUCHING: Pestech International Bhd’s (Pestech) share price has rallied by a robust 64 per cent in the past five months, but analysts still believe there is further upside to the stock given upcoming tenders which the group stands a good chance in securing.

Kenanga Investment Bank Bhd (Kenanga Research) in a report yesterday highlighted that Pestech has participated in the high profile RM300 million Pengerang tender in Petroliam Nasional Bhd’s (Petronas) refinery and petrochemicals integrated development (Rapid) which it stands a good chance and the outcome is expected early 2015.

At the end of trade yesterday, Pestech closed at RM6.02, an increase of six sen or 1.01 per cent with 170,900 shares traded.

“Besides this, out of the RM1.6 billion, there are also a few other tenders totalling RM550 million which Pestech also has a fair chance of securing in the next six months.

“This includes the RM200 million Sarawak utility contract, RM30 million Northern Utility project, RM120 million Sri Lankan project, RM30 million Philippine project and RM200 million Track 3B project,” it added.

With its current order book of RM660 million, Kenanga Research opined that its financial year 2014 (FY14) to FY15 revenue estimates of RM245 million to RM335 million are fairly achievable.

“Most of the contracts secured are running up to 24 months except the US$86.1 million Cambodian project clinched in March 2014 which is 32 months.

“As such, with its current tender book of RM1.6 billion (as at May 2014), any new award contract to Pestech is highly positive to its bottom-line, and hence its share price,” the research team projected.

Aside from that, Kenanga Research noted that Pestech also has good potential in digital telco equipment.

“In end June 2014, Pestech secured a small RM1.1 million contract from Tenaga Nasional Bhd (TNB) to supply the utility synchronous digital hierarchy (SDH) telecommunication equipment for TNB operation requirement.

“This is a trial project to replace TNB’s existing communication system with substations as the new system is more efficient and effective.

“We understand once this is completed, the system upgrade will cost circa RM500,000 to RM800,000 per substation.

“The potential from this deal could be substantial given that TNB has a total of 500 substations in the country,” it explained.

All in, with RM880 million tenders outcome in the next six months with considerably good chance of securing several of them, Kenanga Research raised its orderbook replenishment assumption for Pestech’s FY15 to RM600 million from RM400 million previously.

It also retained its ‘outperform’ call on the stock and raised its FY15 forecast by 37 per cent as well as its target price at RM7.27 per share (from RM5.34 per share, previously), based on an unchanged 2015 13-folds price earnings ratio.