Background: PEC is an engineering, project management and maintenance services provider to the oil and gas, petrochemical and pharmaceutical industries. The majority of its business is in Singapore, but it also carries out projects in the UAE and China. Its revenue is around 70% of project works, while the remainder consists of maintenance contracts, primarily for projects it has constructed.
Recent development: Despite the weak environment, PEC continues to secure new contracts, the most recent being a five‐year maintenance contract for ExxonMobil’s Singapore facilities. It has also secured $45m worth of project works recently to push its orderbook (ex‐maintenance) to over $300m.
Key ratios…
Price‐to‐earnings: 6.1x
Price‐to‐NTA: 1.0x
Dividend per share / yield: 3.0cts / 3.8%
Net cash: $159m
Net cash as % of market cap: 79%
Share price S$0.785
Issued shares (m) 255.2
Market cap (S$m) 200.3
Free float (%) 33.7
Recent fundraising Nil
Financial YE 30 June
Major shareholders Management – 58.7%
YTD change ‐31.2%
52‐wk price range S$0.735‐1.380
Source: Company data
Our view
Earnings stable. PEC’s recently reported FY Jun11 earnings were slightly below expectations due to weaker performance at its associates. However, core earnings and operating margins have remained firm. This is expected to be maintained going forward, partially through its $300m orderbook.
Expansion plans afoot. Following its IPO in 2009, the company has yet to fully deploy its cash raised of $26m and is looking for more acquisitions. It has announced plans to expand beyond the oil and gas sector into infrastructure and energy‐related facilities. It also recently established a subsidiary in Myanmar.
Valuations attractive, sentiment not. PEC’s share price has lost 31% of its value since the beginning of the year. It currently trades at just 6x consensus forward earnings. The company has $159m in cash and practically no debt whatsoever. This represents some 62 cents per share, or 79% of its share price. Stripping out the cash from its capitalisation, PEC’s forward earnings multiple is just 2.7x.
Ripe for a rebound? We expect this stock to continue to be exposed to negative sentiment due to the cyclical nature of the industry that it operates in. However, given its relatively stable earnings backed by a decent orderbook and cash‐backed share price, there is potential for a major rebound for PEC should the market recover. Consensus estimates peg fair value at between $0.90 and $1.36 per share.
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