PESTECH Earnings to be Driven by New Domestic and Regional Projects
PESTECH International Bhd business growth is expected to be driven by new projects contribution and improved construction progress.
Hong Leong Investment Bank Bhd (HLIB) analyst Daniel Wong, in a note yesterday, stated that PESTECH has a strong orderbook of RM2.2 billion in hand and ongoing tender book of RM1 billion to RM1.2 billion.
“We derive a conservative fair value of RM1.78 on PESTECH based on the sum of parts. We opine that the valuation is justifiable by its healthy balance sheet, strong projected earnings with superior orderbook of RM2.2 billion and tender book of RM1 billion to RM1.2 billion,” the investment bank noted.
HLIB expects PESTECH’s core earnings to grow at a compound annual growth rate (CAGR) of 32.7% for the financial year 2021 (FY21) to 2023 due to the combination of new projects contribution and project progress normalisation.
This would be backed by recurring cashflow from concession build-operate-transfer, build-own-operate and contracted build-transfer projects.
“The group has strong growth potential in Malaysia and regional Asean power, rail infrastructure investments, and solid start-up of renewable energy (RE) and electric-vehicle (EV) infrastructure development, in line with Malaysia and regional Asean’s green energy roadmap,” Wong noted.
In the RE and EV space, PESTECH currently owns a 20MW large-scale solar (LSS) in Cambodia and is set to benefit from Asean’s target of 35GW to 40GW of RE capacity by 2025.
“PESTECH is also providing EV charging solutions with existing 18 EV charging stations.
“Management is in talks with various parties for potential EV charging stations in commercial buildings, condominiums and along the highways, which bodes well with the recently proposed Low Carbon Mobility Blueprint 2021-2030 by Malaysian Green Technology and Climate Change Centre to accelerate national EV adoption rate,” he added.
Wong said PESTECH is benefitting from Tenaga Nasional Bhd (TNB) and Cambodia’s substantial investments into power infrastructure.
“TNB is targeting RM27 billion investment in transmission and distribution (T&D) for 2021 to 2023 to ensure long-term system sustainability and meet future Malaysian Electricity Supply Industry (MESI) 2.0.
“Similarly, Cambodia will continue to invest heavily on T&D in order to achieve its target of electrification for 90% of households by 2030 versus 80% in 2019, and cater for the projected doubling of peak power demand and power generation capacity by 2030 with integration of RE and digitalisation,” he said.
PESTECH is targeting expansion into other Asean countries given the huge T&D potential investments in the region.
Wong said the company has developed strong capabilities in providing its total solution for domestic rail electrification with several notable projects.
“We believe PESTECH has a good chance to secure contracts in the upcoming Malaysia mega rail projects, namely the Mass Rapid Transit Line 3; the East Coast Rail Link; the high-speed rail; the Johor-Singapore Rapid Transit System; and the Klang Valley Double Tracking 2.
“National Rail Centre of Excellence has recently estimated project value of US$48 billion (RM198 billion) for Malaysia railway projects until 2030 with a target of increasing localisation to a minimum of 45%, potentially benefitting companies like PESTECH,” he said.