PEC LTD – Cash-rich February 24, 2021 621
- PEC is the largest single-source plant and terminal maintenance service provider in Singapore.
- Project Work (PW) orderbook grew at a 5-year CAGR of 3.4% to S$191mn in FY20. Topline anchored by S$200mn worth of recurring maintenance service (MS) revenue.
- Net cash is 76% of PEC’s market cap.
Company Background
A local player since 1982, PEC is a plant and terminal engineering specialist with a footprint in nine countries. It is the largest single-source maintenance service provider in Singapore. Through its core businesses, PW (55% of FY20 revenue) and MS (44%), PEC caters to downstream customers in four main sectors: oil & gas, petrochemical, oil & chemical terminals and pharmaceutical in Southeast Asia and the Middle East
Highlights
- Excluding impairments, PEC would have been profitable in FY20. 4Q20 performance was affected by lockdowns and closed borders, which restricted global trade and travel flows. Despite this, revenue grew 26% YoY in FY20. Excluding net impairment of financial assets of S$16.4mn inclusive of a S$10.7mn provision for long outstanding receivables in FY20, PEC would have been profitable due to higher PW revenue.
- PW orderbook grew at a 5-year CAGR of 3.4% to S$191mn in FY20. PEC’s ability to sustain orderbook growth is attributable to its loyal customer base, cutting-edge equipment and systems and recognition as a reliable integrated engineering solutions provider.
- S$200mn worth of recurring MS revenue. A typical PW project takes 1-2 years to complete. MS contracts last 3-5 years. MS revenue grew at a 5-year CAGR of 8.3% in FY15-FY19, to contribute 44% to FY20 group topline. As PW sales are lumpy, the growth in recurring MS income is expected to provide greater income visibility.
- Net cash is 76% of market cap. Balance sheet remains healthy with net cash of S$81mn in FY20, close to 76% of its market cap. Net cash to equity is 37% and gross gearing is minimal at 8.9%. With strong cash generation and a robust balance sheet, expect consistency in dividend payments and potential share buybacks.
- Leveraging Singapore’s strength as top 10 petrochemical hub. Singapore is the world’s fifth-largest refinery export hub. It ranks among the top 10 globally by chemical export volume. Despite Covid-19, its chemical cluster attracted the second-largest amount of commitments in fixed asset investments in Singapore in 2020. Singapore will continue to work towards creating 1,400 new jobs and manufacturing value added (MVA) of S$12.7bn in its energy and chemical industry by 2025 through an Energy & Chemicals Industry Transformation Map (ITM).
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Revenue
PEC offers services* at every stage of the plant and terminal construction and maintenance value chain. PW and MS are its core businesses. Singapore is PEC’s largest market in both businesses, at 39% of PW revenue and 58% of MS revenue in FY20. 1. PW. Project-based. Comprises engineering, procurement & construction (EPC), EPC project management, engineering and project management consultancy services. 2. MS. Recurring. Comprises plant turnaround and upgrading, maintenance of plant equipment and single-source maintenance services for production plants. |
About the author
Tan Jie Hui
Research Analyst
Phillip Securities Research
Jiehui covers the REITs and Property sector. Previously at a sell-side research firm, Jiehui was exposed to news flow and insights from various industries and assisted the property and consumer analysts with their coverage.
She graduated with a Bachelor of Business Management with a major in Finance from Singapore Management University.