Pestech to tap into regional economic recovery

TheEdge Wed, Mar 31, 2021 05:00pm - 2 years View Original


THE acceleration in the vaccine rollout has put the global economy in a revival mode. Usually, infrastructure development would be governments’ top priority in their efforts to revitalise the economy.

Power infrastructure specialist Pestech International Bhd believes the vast potential of the regional power infrastructure business will serve as a strong support for its order book replenishment.

“We see in the next two to three years, regional countries, including Malaysia, will continue to build their infrastructure, which is a low hanging fruit to stimulate their economic growth,” Pestech managing director and CEO Paul Lim Pay Chuan tells The Edge in an interview, noting that this will be further underpinned by the continued urbanisation in Southeast Asia.

As at Jan 21 this year, the company had an order book of RM2.2 billion, which can sustain it until 2023. Of the jobs at hand, domestic contracts accounted for 40%, while the remaining 60% were from major overseas markets such as Cambodia, the Philippines and Papua New Guinea.

Lim highlights that in the last four years, the company’s new order book has been around RM1 billion per annum.

“We believe this trend will continue. We are positive about the financial year ending June 30, 2021 (FY2021). We will hit RM1 billion to RM1.5 billion. We believe the project pipeline will be able to hit RM1 billion as well in FY2022.”

Pestech is mainly involved in two business segments, namely power network and rail electrification, which contributed 59% and 38% respectively to its FY2020 business volume. Currently, it is tendering for around RM2 billion worth of jobs.

For the first six months ended Dec 31, 2020 (6MFY2021), Pestech’s net profit fell 15.8% to RM23.13 million from RM27.45 million in the same period the year before, but with higher revenue of RM427.41 million against RM378.22 million previously, reflecting the stage of project completion.

“We see opportunity to maintain the revenue or even higher for FY2021. It is almost business as usual in overseas markets. In Malaysia, as there have been Covid-19 clusters here and there, the adherence to SOPs (standard operating procedures) has made the work progress slower,” Lim shares.

In a Feb 17 note, Kenanga Research maintained its “outperform” call on Pestech with a higher target price of RM1.46. Since early this year, the counter has gained 19.8% to close at RM1.12 last Thursday, giving the company a market capitalisation of RM856.01 million. The stock touched an intraday high of RM1.43 on Feb 16.

Pestech had RM1.11 billion in gross borrowings as at end-December 2020, putting it in a net debt position of RM997.8 million with a gearing ratio of 1.9 times.

Despite the recent mutual termination of its transmission line project in Fiji that was worth about RM70 million, Lim does not see it as a setback for the company as it still has a sizeable order book. The decision was made after taking the pandemic outbreak into account.

“We were not able to come up with an accurate cost estimation and duration for the project during the pandemic, which became a risk for Pestech,” he explains.

Lim says that the company’s diversified exposure in the regional market has helped it mitigate any shortfall in the local market.

“In the region, rail electrification has received attention from various governments like Thailand, the Philippines and Cambodia. We are the only regional company that has a complete track record in electrification for urban rail.”

In Thailand’s capital of Bangkok, Pestech has completed the overhead catenary system installation for the MRT red line extension, and is working on the orange line in the city. In the Philippines, it is participating in a rail electrification job for over 100km on Luzon island.

At home, it is now undertaking Phase 2 of the MRT2 electrification job, which is expected to be completed by the end of the year, while its Subang Skypark electrification job is also near completion.

Recently, Pestech bagged a 230kV underground cable work project in Cambodia, successfully extending its extra high voltage underground cable design and laying capabilities outside Malaysia.

On the lookout for opportunities in Bangladesh, Vietnam

Pestech is looking to further strengthen its foothold in the region, including in Bangladesh and Vietnam.

“There are a lot of invitations from the Ministry of Power, Energy and Mineral Resources of Bangladesh for electrical infrastructure there. We are also exploring the Vietnam market to service its ageing power plants,” says Lim.

Nonetheless, the bottom line is that the company must garner a net margin of at least 9% to 11%.

“Looking at the size of the cake and the initiative to reinvest ourselves to offer new things, there is no need to squeeze our profit margins,” he adds.

Besides the conventional power business, the company is also involved in renewable energy such as solar power and charging stations for electric vehicles (EVs), albeit with minimal contribution at the moment.

It is selective in pursuing opportunities in renewable energy to maintain its profit margins, but integrated margins could be achieved by playing the role of developer as well as engineering, procurement, construction and commissioning (EPCC) contractor in the solar power business.

As for the EV segment, Pestech has completed 18 EV charging stations in Malaysia in collaboration with Tenaga Nasional Bhd and parking solutions platform ParkEasy, on a revenue sharing model.

“EV is the future trend. We are in discussions with some condominiums as well as looking at opportunities to work with highway operators to put EV charging stations along the highways,” says Lim.

Pestech’s 2018 venture into EV is still in the infancy stage as the government has not heavily promoted the use of EVs.

“That is the challenge in Malaysia. But if you look at Thailand and Singapore, you have capex (capital expenditure) allowance for investing in EV charging stations,” he notes.

Regardless, he stresses that the company is prepared to work with different parties as it has the proven technology and method to roll out the charging network in the country.

On dividend payouts, Lim says Pestech has more leeway to declare dividends as it has been receiving a monthly recurring income of US$3 million since early last year from its power transmission line projects in Cambodia. For FY2021, it has so far paid a special dividend of one sen.

 

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