1. PEC is the largest single-source plant and terminal maintenance service provider in Singapore.
2. 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.
3. 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

1. 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.

2. 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.

3. 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.

4. 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.

5. 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).

Source: Phillip Capital Research - 24 Feb 2021