Pestech: Earnings Soared

Background

Pestech International Bhd ("Pestech") is involved in:

• Turkey Substation EPCC
• Transmission line engineering & construction
• Underground cables for electricity transmission & distribution
• SCADA

For more on this company, go here.

Results Update

For QE30/6/2019, Pestech's net profit rose 58% q-o-q or 89% y-o-y to RM34 million while revenue rose 28% q-o-q or 139% y-o-y to RM285 million.

The Group’s revenue rose 139% y-o-y which reflects the stage of on-going transmission, distribution and rail electrification projects. As of 30.6.2019, its order book balance stood at RM1.63 billion, which will be realized progressively over the contract periods. Other income of the Group mainly arose from concession asset and unwinding discount of suppliers for 2 years credit term in current financial year.

The Group’s profit before tax rose 136% y-o-y from RM17.6 million to RM41.5 million due to higher revenue. The PBT margin remained unchanged at 15% for QE30/6/2019.


Table: Pestech's last 8 quarterly results


Graph: Pestech's last 30 quarterly results

Financial Position

As at 30/6/2019, Pestech's financial position is deemed fair with adequate liquidity as reflected in a current ratio of 1.6 times but elevated leverage as reflected in a gearing ratio of 2.8 times.

Valuation

Pestech (closed at RM1.43 yesterday) is now trading at a trailing PER of 13.6x (based on last 4 quarters' EPS of 10.49 sen). At this PER, Pestech is deemed fairly valued. However, if the earnings continue to improve, PER will drop and the stock will be more attractive.

Technical Outlook

Pestech has broken above its intermediate downtrend line, RR at RM1.05 in June this year. It is now hanging onto the horizontal line at RM1.40. Its immediate resistance is the horizontal line at RM1.50 while its next support is the horizontal line at RM1.27-1.30.


Chart: Pestech's weekly chart as at Aug 27, 2019 (Source: MAlaysiastock.biz)

Conclusion

Based on improved financial performance and bullish technical outlook, Pestech is a good stock for long-term investment.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.