PEC LTD. (SGX:IX2)
PEC Ltd - Cash-Rich
- 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, while PEC's topline is anchored by S$200mn worth of recurring maintenance service (MS) revenue.
- Net cash is 76% of PEC’s market cap.
PEC Ltd - Company Background
- A local player since 1982, PEC Ltd (SGX:IX2) is a plant and terminal engineering specialist with a footprint in nine countries. It is the largest single-source maintenance service provider in Singapore.
- PEC offers services at every stage of the plant and terminal construction and maintenance value chain, that cover engineering, mechanical, piping, structural, tankage, electrical & instrumentation, heat treatment, testing & isolation, painting & blasting, scaffolding, insulation & refractories, fireproofing and hydro jetting.
- Project Work (55% of FY20 revenue) and Maintenance Service (44% of FY20 revenue) are PEC's core businesses. Singapore is PEC’s largest market in both businesses, at 39% of Project Work revenue and 58% of Maintenance Service revenue in FY20.
- Project Work (PW): Project-based. Comprises engineering, procurement & construction (EPC), EPC project management, engineering and project management consultancy services.
- Maintenance Service (MS): Recurring. Comprises plant turnaround and upgrading, maintenance of plant equipment and single-source maintenance services for production plants
PEC Ltd - The Highlights
Excluding impairments, PEC would have been profitable in FY20.
- PEC's 4Q20 performance was affected by lockdowns and closed borders, which restricted global trade and travel flows. Despite this, revenue grew 26% y-o-y 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 could be attributed to:
- A loyal customer base and experienced management team. PEC’s customers include major MNCs in the oil & gas, petrochemical, pharmaceutical and oil & chemical terminal industries. Many have relationships of 20-30 years with PEC. Most of PEC’s senior executives have been with the group for more than 15 years, providing decades of experience in their individual fields.
- Extensive track record and recognition as one-stop shop for both PW and MS services. Over the past two decades, PEC has built a strong reputation as a reliable integrated engineering solutions provider. PEC can cross-deploy equipment to various operational sites and respond to emergencies or un-planned plant shutdowns. As a result of its reliability and flexibility, it is able to secure bigger projects. In addition, PEC is recognised for its excellent safety standards and best practices, with its various health, safety, security and environmental certifications (e.g. ISO-9001) and awards.
- State-of-the art facilities, equipment and information systems. PEC has its own fabrication facilities in the countries it operates in, providing support to all PW and MS contracts. In Singapore alone, PEC has an 86,000 sqm fabrication facility where it owns 2,000 pieces of construction equipment. This assures customers that it has the necessary resources to support project implementation without delays. PEC has also developed its own cutting-edge resource and project management solutions that enhance the effectiveness, safety and efficiency of plant maintenance work. Ongoing digitalisation and deep engineering capabilities are expected to position PEC well for rising opportunities in existing and adjacent market segments.
S$200mn worth of recurring MS revenue.
Net cash is about 76% of market cap.
- PEC’s balance sheet remains healthy with net cash of S$81mn in FY20. This is 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, consistency in dividend payments and potential share buybacks are expected.
Next stage of growth: expansion in Asia and Middle East.
- In line with its expansion strategy, PEC secured two new operating maintenance sites in China and completed the purchase of a remaining 40% equity interest in Huizhou Tianxin Petrochemical Engineering Co. Ltd for RMB37.5mn or S$7.4mn in FY20. The latter provides project works and maintenance services to China’s energy & petrochemical sectors.
FY20 dividend yield of 1.23%.
- PEC maintained dividend yields of 3-4% in FY17-FY19. In light of its need to conserve cash during the pandemic, it has proposed a final tax-exempt, one-tier dividend of S$0.005 per share for FY20, bringing FY20 dividend yield to 1.23%.
- See
Singapore: A Top-10 Petrochemical Hub
- Today, Singapore is the world's fifth-largest refinery export hub and ranks among the top 10 globally by chemical export volume. Listed among the globe’s top 10 petrochemical hubs, Jurong Island is the crowning glory and nucleus of Singapore’s petrochemical industry. Continue to read more in report attached below.
Tan Jie Hui
Phillip Securities Research
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https://www.stocksbnb.com/
2021-02-24
SGX Stock
Analyst Report
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