Cambodian contract a boost for Pestech
KUCHING: Pestech International Bhd ( Pestech) has nabbed its biggest ever contract at RM400 million from Cambodian company Alex Corporation (Alex Corp) to undertake a transmission system project between the Stung Tatay Hydro Power Plant and Phnom Penh.
The announcement was made last week in a filing with Bursa Malaysia where further details of the contract award and its scoped were delivered.
According to the filing, the project would commence within the next three months and completion is expected to be within 36 months from the commencement date.
For its scope, the project mainly involves the designing, engineering, manufacturing, instal lat ion, test ing and commission of the approximately 220km 230kV double circuit transmission line that is needed to connect Stung Tatay Hydro Power Plant to Cambodia’s capital.
In addition to this, Pestech will also be undertaking the supply, installing and connection of two 230kV line bays at the hydro plant’s switchyard.
While the filing did not disclose any payment arrangements, Kenanga Investment Bank Bhd ( Kenanga Research) opined that payment would likely be similar to the arrangement in the previous contract award from Alex Corp, whereby payment had a long credit term over the period of six years and commenced only after the completion of the project.
“We also understand that it is the same supplier, Speco that also gave the group a long credit term of two years for the first Alex Corp project that matched receivable payments from the state- owned utility Electricite du Cambodge ( EdC) for Alex Corp’s job,” the research arm noted.
If this is the case, Pestech’s receivable are forecasted to rise by another US$100.2 million or RM400 million by mid-2020.
“While these high receivable do look uncomfortable, the guaranteed payment from EdC which matches payment to supplier will reduce cash- flow concerns at Pestech’s end,” added the research arm.
The impressive win is the largest contract sum Pestech has secured in a single contract and marks its sixth win in Financial Year 2017 (FY17), bumping its total wins in FY17 to RM910 million – a record sum secured within one financial year for the electrical power technology company.
Despite this feat, expectations for Pestech are high as the team at Kenanga Investment Bank Bhd ( Kenanga Research) noted that the group will need to bag an addition RM65 million worth of wins in order to meet their billing assumptions of RM650 million in FY18.
Conf idence in Pestech on achieving is high however, as the research arms reports that the group is still currently involved in another major bidding which stands a high chance of success and if successful, could catapult its earnings to an all new high.
With that said, the research arm reiterated its ‘outperform’ rating on the stock with an unchanged sum- of-parts price target of RM2 per share due to its earnings growth story.