Analysts positive on Pestech’s move to diversify beyond EPCC contracts

KUCHING: Pestech International Bhd’s (Pestech) move to acquire a majority stake in a Cambodian company that possesses the right to Build- Own-and- Operate (BOO) a solar farm in Cambodia has been viewed positively by analysts as the move could help the company enrich its future recurring income.

According to its filing on Bursa Malaysia, Pestech, via its subsidiary Astoria Solar Farm Sdn Bhd (ASF), entered into a share sale and purchase agreement (SSPA) to acquiring 94 per cent stake in Green Sustainable Ventures (Cambodia) (GSV) for US$4 million.

Under the proposed acquisition, ASF has supermajority rights over the development of 20-year concession (with addition one year of construction period) of not less than 20MW AC (24MW DC) large-scale solar farm project in Bavet City, Svay Rieng Province, Cambodia via a long-term power purchase agreemnt (PPA) with Electricite du Cambodge (EDC) under the BOO model with a power purchase price of US$0.076 per kWh.

“We are positive with the move, catapulting Pestech into the power generation business with recurring income over the next 20 years.

“This is also its second concession business following the independent power transmitter Diamond Power Ltd (DPL) in Cambodia that started operating in Jan 2018,” the research team at Kenanga Investment Bank Bhd (Kenanga Research) opined.

It pointed out that the capital expenditure (capex) for this solar farm is estimated at US$20 million with scheduled COD of Oct this year.

“We learnt that it is a 70: 30 debt to equity financing with cost of borrowing of less than six per cent and a 10 per cent IRR. Based on this information, our back- on-the- envelope calculations derive circa US$2.8 million profit a year and it could also add circa RM0.03 per share into Pestech’s sum of parts valuation matrix.

“As ASF will be the engineering, procurement and construction, and commissioning (EPPC) constructor for this solar farm project, Pestech is expected to generate construction profit from this project during the construction period,” it estimated.

The move could also lessen its reliance on EPCC and product earnings, this second concession asset is timely, building its recurring income base further.

“Based on FY18A MI, we estimated that the 60 per cent- owned DPL contributed slightly less than 20 per cent or RM15 million to its core profit of RM72.4 million in FY18,” Kenanga Research said.