Analysts positive on Pestech’s foray into Philippines

KUCHING: Pestech International Bhd’s (Pestech) foray into a new market in the Philippines has been viewed positively by analysts as this opens doors for other opportunities the country.

Yesterday, the shares rose two sen to RM1.44 with 3.07 million shares traded upon closing.

To note, Pestech announced that its wholly-owned subsidiary Pestech Sdn Bhd has received the Notice of Award of Contract from the National Grid Corporation of the Philippines (NGCP) worth a total of circa RM37.8 million.

In a report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined, “We are pleased with this piece of news as this contract marks its foray into a new market in the Philippines for the first time although the contract value is relatively small.

“We see potential there given as 30 per cent or 28 million of its population are without access to electricity supply.

“We understand that the company will focus on small contracts worth US$ 10 million to US$ 20 million each initially to build its base before looking for sizeable contract, which is the same model when it started venturing into Cambodia.

“Profit margin for this new contract is still within the range of 10 per cent.”

Overall, the research team said that with the new contract, the company’s financial year 2016 (FY16) is looking up.

“With this new contract, current order book is estimated to be circa RM1 billion, which provides at least two firm years of earnings visibility with new job opportunities with tender for RM1.7 billion worth of job,” it said.

It noted that as Pestech is expected to announce its 4Q16 results, it expected its results to be on track to meet its FY16 estimates of RM54 million which is another record high for the company.

It maintained an ‘outperform’ on the stock and noted that with no negative corporate development and 4Q16 results set to meet its forecast, it believed the recent weakness presents a great opportunity to accumulate this stock with “explosive” earnings growth story.