SINGAPORE (Feb 21): KGI Securities says PEC’s current stock price of 60 cents “severely undervalues” the group’s profitable businesses that have been in operations since the 1980s.
At this level, investors will be buying PEC’s profitable operations for free given PEC’s 58 cents net cash position, says analyst Joel Ng in a Monday report.
Furthermore, industry cycle has bottomed and may recover in 2018, in its view.
“We believe PEC could re-rate up to at least 73 cents... over the next few months on the back of further contract wins,” says Ng.
PEC mainly services the major oil companies’ downstream assets such as petrochemical and pharmaceutical plants.
As it is, maintenance contracts provide contributing 30% of revenues or on average $140 million per year over the past five years.
This month, PEC won a seven-year maintenance contract for Vietnam’s largest refinery and petrochemical plant.
“We note this ties in nicely with the group’s strategy of growing its overseas maintenance business which will add to recurring revenue,” says Ng.
In addition, PEC has consistently delivered EPC projects worth at least $300 million per year over the past five years, providing upside to the stock price.
While net orderbook had declined to $107 million as at 31 Dec 2016 or equivalent to a one quarter of FY16 revenues, Ng understands from his discussion with management that enquiries have begun to pick up for project works in the regions where it is focused in, mainly the Middle East and in South East Asia.
Meanwhile, PEC paid out a total of 3 cents dividend in FY16, an implied yield of 5.0% based on its current price.
“We believe the increased payout may have to do with a record $45 million free cash flow that it generated in FY16, the highest since FY10,” says Ng.
In addition, the group has essentially been debt free over the past 10 years with stable gross margins of between 16% and 26% over the same period.
