Pestech International Bhd

Company UpdateChaw Sook TingTel : +6(03)9207 7604Email : chaw.sook.ting@rhbgroup.comPestech International Bhd3 June 2013BUYTargetMYR2.80Previous MYR2.80PriceMYR2.51Major Shareholders (%)Lim Ah Hock 41.6Stock InformationMarket cap (MYRm) 215.6Lim Pay Chuan 26.8 Share Capital (m) 85.9Ibrahim b. Talib 2.5 OSK 188 Ticker PESTECHIndustryPowerA Proxy To Malaysia’s Power Infrastructure DevelopmentsCompany DescriptionPestech specializes in the provision ofengineering and solutions for powertransmission systems.Our recent meeting with Pestech’s Management reinforces our positive view on the company. In this report, we review some of its keyprojects and also talk about its future prospects. Pestech is tapping on infrastructure activities in various development regions in Malaysiaand has secured its first solar power-related project in Gebeng. The contract value, although small, will pave the way for Pestech toparticipate in more solar power-related projects in the future. We maintain our Buy call, with a RM2.80 FV, pegged to 10x the stock’sprojected FY14 P/E.5 major projects in hand. As at end-March, Pestech has 11 projects in hand with a total value of MYR392.9m. Of these, five are major projectsin Johor, Sarawak and West Africa, which together make up 65.8% of Pestech’s overall contract value and will last the company for the nexttwo years.Getting a slice of the action in development regions. Of the five major projects in hand, four are local projects related to various developmentregions being rolled out by the Government. Besides securing contracts from OM Materials Holdings and Asia Cement Co Ltd in the SarawakCorridor of Renewable Energy (SCORE), Pestech is also building: i) a 275/33kV substation under a contract from Sarawak Energy Bhd (SEB); ii)the Pencawang Masuk Utama (PMU) 132/33kV Financial Centre Substation project in Nusajaya, Johor – to supply electricity within IskandarMalaysia’s Flagship B Zone; iii) to extend Tenaga Nasional Bhd (TNB)’s existing 132kV substation at Teluk Ramunia; and iv) the infrastructure togenerate 90 MVA (mega volt ampere) in additional capacity to provide initial electricity supply to the Refinery and Petrochemical IntegratedDevelopment (Rapid) project in Pengerang in Johor. Rapid, worth MYR60bn, is Petronas’ largest refinery and petrochemical venture inMalaysia.Secures maiden solar power-related project. In the area of solar power, Pestech has bagged a project from Petronas Power SB (PPSB) for theengineering, procurement and construction (EPC) of a 33kV interconnection transmission line and underground cables from the PPSB GebengSolar Independent Power Plant (IPP), a utility-scale 10.02MW IPP in Gebeng, Kuantan, to TNB’s PMU at Gebeng Industrial Estate to facilitategrid connection. This is part of Petronas’ initiative to explore opportunities in green and renewable energy. Despite the relatively smallcontract value of MYR1.2m, this project will open the door for Pestech to participate in future solar power-related projects.VAR agreement with Siemens. Meanwhile, Pestech has via Siemens Malaysia, also sealed a value added reseller (VAR) agreement withSiemens Germany in relation to its energy automation products. This will give the company access to Siemens’ product training as a systemintegrator and pick up knowhow and be updated on Siemens’ new energy automation products. The deal will enable Pestech to serviceSiemens globally as an approved system integrator, as it would have the competence to upgrade or extend any existing Siemens systemsolutions in the region.BUY, MYR2.80 FV. We like Pestech’s exposure to the growing demand for power, its own organic growth as it rolls out new products, as wellas the potential of its collaboration with Siemens enhancing its position as an integrated power transmission system provider in Malaysia andthe Asian region. We maintain our BUY call on Pestech, with a MYR2.80 price target, pegged at a P/E of 10x.FYE Dec (MYRm) FY10 FY11 FY12 FY13f FY14fRevenue 115.0 130.9 136.1 179.8 214.9Net Profit 11.5 12.0 16.6 20.0 24.1% chg y-o-y - 4.4 38.2 20.6 20.5Consensus - - - n.a n.aEPS (sen) 15.7 16.4 20.6 23.3 28.0Net DPS (sen) - 0.0 7.7 8.0 9.0Net dividend yield (%) - 0.0 3.1 3.2 3.6ROE (%) - 30.9 25.3 25.4 25.4ROA (%) - 15.4 12.7 13.6 13.1PER (x) - 15.3 12.2 10.8 9.0BV/share (MYR) - 0.53 0.81 0.92 1.11P/BV (x) - 4.7 3.1 2.7 2.3RHB Retail Research / Market Dateline / PP 7767/09/2012 (030475)Page 1 of 6

Investment Case5 major projects in hand. As at end-March 2013, Pestech had 11 projects in hand worth MYR392.9m in total. Of these, five are major projectslocated in Johor, Sarawak and West Africa, which together make up 65.8% of its total contracts. This will keep the company busy for two years.Figure 1: Major projectsValue (MYRm) Details of project35.3 Establishment of new PMU 132/33kV Financial Centre GIS and extension of two overhead line bays at PMU 132kV Gelang Patah, Johor14.0To supply, erect and commission 132kV & 33kV switchgear, transformer and ancillary equipment, complete with associated civil works forPMU 132/33kV Teluk Ramunia extension (2x90MVA), Johor91.8 Murum Junction 275/33kV substation, Sarawak36.1** EPC work package for a 275kV substation for Ferro Alloy project in Samalaju, Sarawak for OM Materials3.0** 225kV high voltage substation for Syama Gold Mine located in the south of Mali, West AfricaNote: MVA refers to Mega volt ampere; PMU refers to main intake transmission substation (Pencawang Masuk Utama); ** In USDSource: Pestech, Bursa MalaysiaInvolvement in development regions. Out of the five major projects in hand, four local projects are related to various development regionsproposed by the government. In our initiation report, we have mentioned that Pestech is participating indirect in SCORE through its contractswith OM Materials Holdings and Asia Cement Co Ltd. Besides these two contracts, it has also won another contract from Sarawak Energy Bhd(SEB) to build a 275/33kV substation in Murum Junction. The substation would serve as a collector station for future hydro power in Belaga(230MW), Pelagus (318MW) and Murum (944MW) hydroelectric power (HEP) plants – see Figure 2.Figure 2 : Location of Murum Junction substationSource: Sarawak Energy Bhd’s websiteSee important disclosure notice at the end of reportPage 2 of 6

Besides SCORE, Pestech is also participating in the PMU 132/33kV Financial Centre Substation project in Nusajaya, Johor to supply electricitywithin the Flagship B Zone of the Iskandar Malaysia (previously known as Iskandar Development Region) which consists mainly of anintegrated development. Flagship B is located in the west of Johor Bahru, in close proximity to Port of Tanjung Pelepas and Gelang Patah.Figure 3: Location map for Nusajaya projectFigure 4: Site condition of the projectSource: PestechSource: PestechOn top of that, Pestech has won a contract from TNB to extend the capacity of the latter’s existing 132kV substation at Teluk Ramunia withadditional 2x90MVA capacity to cater for initial electricity supply to the Refinery and Petrochemical Integrated Development (RAPID) project inPengerang, Johor. RAPID is Petronas’ largest refinery and petrochemical venture in Malaysia worth MYR60m. RAPID has proposed for crude oilrefinery capacity of 300,000 barrels per day and it will also produce other refined petroleum products, including gasoline and diesel. Petronasis also assessing the feasibility of developing a new liquefied natural gas (LNG) receiving and re-gasification terminal and a co-generationpower plant in the future in order to support RAPID’s development. We see this as an opportunity for Pestech to secure more jobs in Johor.Figure 5: Location map for Teluk Ramunia projectFigure 6: Site condition of the projectSource: PestechSource: PestechSee important disclosure notice at the end of reportPage 3 of 6

Outside of Malaysia, Pestech has clinched a project in Mali, West Africa from Societe des Mine Syama (SOMISY) to connect the Syama goldmine plant to the Mali Electricity Grid. The Group has been appointed to construct and install three high voltage substations, namely theEnergie Du Mali (EDM) Sikasso substation extension, and the new EDM Syama and Somisy substations. This project is to provide electricitysupply to the gold mine and to its surrounding neighborhood.Figure 7 : Aerial view of Syama gold mineSource: PestechFirst solar power-related project. Pestech secured a project from Petronas Power Sdn Bhd (PPSB) for the engineering, procurement andconstruction (EPC) of a 33kV interconnection transmission line and underground cables from PPSB Gebeng Solar Independent Power Plant(IPP) to TNB’s PMU at Gebeng Industrial Estate for the grid connection. PPSB has developed a utility-scale solar IPP of 10.02MW at Gebeng,Kuantan as part Petronas’ intiative to explore opportunities in green and renewable energy. The contract value of the project is relatively smallat MYR1.2m, However, this is the first solar power transmission system project for Pestech and opens up opportunity for the company toparticipate in more solar power-related project in the future.Healthy tenderbook. We understand that Pestech has tendered for a few projects with a total proposed value of over MYR850m. The totaltenderbook of over MYR850m is a combination of local and overseas projects. With an historical winning rate of about 20%, the companycould potentially win MYR170m worth of new jobs in FY13-FY14.Company UpdatesBought land for future expansion. In April this year, Pestech acquired a piece of industrial land in Ulu Selangor for future expansion in productmanufacturing. The company paid MYR3.7m for the 2-acre land and the acquisition is expected to be completed by 3QFY13.VAR agreement with Siemen. Pestech has established a value added reseller (VAR) agreement with Siemens Germany, through SiemensMalaysia, for its energy automation products. This provides the Group access to Siemens product training as a system integrator, enabling it tokeep up-to-date with Siemens’ new energy automation products and knowhow. The agreement also allows Pestech to service Siemensworldwide as an approved system integrator as it will be competent to upgrade or extend any existing Siemens system solutions in the region.Valuation & RecommendationMaintained BUY, FV of MYR2.80. Infrastructure is an essential ingredient for developments. As such, companies like Pestech would benefitfrom the infrastructure developments within the various development zones. While we continue to like Pestech for its exposure to thegrowing demand for power, its organic growth such as future plant expansion and collaboration with Siemens would further enhance itsposition as an integrated power transmission system provider in Malaysia and Asia. We are maintaining our BUY call on Pestech, with a pricetarget of MYR2.80, pegged at a P/E of 10x.See important disclosure notice at the end of reportPage 4 of 6

RHB Guide to Investment RatingsBuy: Share price may exceed 10% over the next 12 monthsTrading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertainNeutral: Share price may fall within the range of +/- 10% over the next 12 monthsTake Profit: Target price has been attained. Look to accumulate at lower levelsSell: Share price may fall by more than 10% over the next 12 monthsNot Rated: Stock is not within regular research coverageDisclosure & DisclaimerAll research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty,express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact anysecurities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposesonly. 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