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Monday, December 29, 2014

Pestech focuses on new segments to fuel growth

Pestech International Bhd
(Dec 24, RM3.49) 

Upgrade to “buy” with an unchanged target price (TP) of RM4.16: Following the recent share price retracement, valuation has become attractive. Industry prospects remain intact, as Tenaga Nasional Bhd (TNB) is planning to spend RM23.3 billion as capex in the 2014 to 2017 period.

Internally, Pestech is focusing on two new business segments to propel future growth. As at end-Sept 2014, Pestech has a total order book of about RM546 million.

The transmission and distribution segment has been contributing over 80% of its total sales in the past few years since its listing in 2010.

The company recently looked into two new segments, namely embedded system software and product development, and power generation and rail, as its new focus.

We believe that the transmission and distribution segment will continue to be its bread and butter for the coming years.

Nevertheless for long-term future growth, Pestech is allocating resources to focus on the new segments to ensure growth and expansion going forward.

According to The Star on Oct 31, TNB has committed a capex of RM23.3 billion for the 2014 to 2017 period to ensure stable electricity supply.

It was reported that 63% of the capex has been allocated for distribution, while the remaining 37% is for transmission. We believe that Pestech would benefit from TNB’s higher capex.

Pestech had a total order book of about RM546 million as at end-Sept 2014, including three major projects that would keep them busy for the next two years.

To date, the company has tendered for local and overseas jobs with a combined value of RM1.4 billion.

Its current share price appears to be attractive following the recent market selldown. Hence, we raise our recommendation to “buy” from “neutral”, with an unchanged TP of RM4.16, pegged to an unchanged FY15F target price-earnings ratio of 15 times. — RHB Research, Dec 24

This article first appeared in The Edge Financial Daily, on December 29, 2014.

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