PEC

[Clement]

Well, I disagree.

Pec's services mainly deal in the downstream part of the oil and gas value chain as well as the chemical industry. If anything, the current price of crude oil will force the middle eastern producers to move down the supply chain and start exporting refined products. This investment in refining and storage capacity was exactly what PEC have positioned themselves to benefit from.

There are not that many companies on the market that trade near net cash, have a growth strategy in place, have a recurring revenue stream and generates strong cash flows. Pec was cash generative even last year, when they posted a loss due to bad debts due from Jurong Aromatics.

[BlueKelah]

Well, I disagree.

Pec's services mainly deal in the downstream part of the oil and gas value chain as well as the chemical industry. If anything, the current price of crude oil will force the middle eastern producers to move down the supply chain and start exporting refined products. This investment in refining and storage capacity was exactly what PEC have positioned themselves to benefit from.

There are not that many companies on the market that trade near net cash, have a growth strategy in place, have a recurring revenue stream and generates strong cash flows. Pec was cash generative even last year, when they posted a loss due to bad debts due from Jurong Aromatics.

as I said they have larger projects completing and depleting order book from 
As at 30 September 2015, the Group’s order book stood at S$315.0 million
As at 31 December 2015, the Group’s orderbook stood at S$239.7 million
As at 31 March 2016, the Group’s orderbook stood at S$206.8 million.
The Group is actively participating in several tenders in Asia and the Middle East to build up its orderbook, which stood at S$161.8 million excluding maintenance contracts as at 30 June 2016
(I only see a company running down its previously bountiful orderbook which IIRC stod at 500mio+ not so long ago)

Revenue from recurring part is stable but also going down, around 149million/yr now. 

Hence growth story is just another story, just after some big project there they manage to get suddenly expect big expansion there? Evidence doesn't point there.
Also the recent bump in dividend from 1c to 2c+1special is still pretty low payout, especially from a company chock full of cash. Historically its around 1 to 2c during normal year.(this is the reason I did not buy in despite the low valuation and being on my radar for some time.)

Net cash is ~132million(87.86% Mcap) now but am pretty sure if they get any projects net cash will go down significantly as they ramp up business. Most of it is probably reserved for future working capital purposes.

Management view :
[The outlook for the global process industry remains challenging in the near to medium term with the continued volatility in crude oil prices. However, we believe that PEC's strategy to expand its overseas presence and enhance its capabilities will put PEC in good stead to secure project opportunities when the industry recovers.

The Group's proven processes, capabilities and network of facilities have enabled i`Zt to deliver fast-tracked and technically challenging projects such as LPG projects. The Group is actively participating in several tenders in Asia and the Middle East to build up its orderbook, which stood at S$161.8 million excluding maintenance contracts as at 30 June 2016.]

Hence i suspect share price is being pumped by the analyst report and speculators rushing in, rather than investors who actually believe there will be any sort of substantial growth in its overseas expansion (which are not a sure thing, they still have to tender, and evidence shows its not going up.)  Its up almost 50% from 40c level in just a few weeks, very unlikely suddenly everyone realise the "value" and jump in

[Clement]

I don't see it that way. Seeing it from a business perspective, there is a lot to like about it even at current prices. Of course it is not without risks, but in my view the risk to reward ratio is favourable.

Yes the book to bill ratio has been declining recently and therefore visibility is poor, but that is to be expected of any company trading near net cash. In response to the lack of success on the sales front, the company has replaced the director of projects. If we remove the maintenance revenue from Jurong Aromatics that was uncollectible last year, that segment was stable. The business is not as capital intensive as you would think with construction and fabrications increasingly done modularly offsite then assembled on site.

At worst, management can always distribute the net cash and put the business up for sale.

[chew]

Er my 2 cents. Co A can be undervalued on a standalone basis while be relatively overvalued at the same time.

[kopihothot]

Sorry to intrude on the discussion but I think the recent price surge is due mainly to the net-cash increase to $0.52 and the positive eps (not to mention high eps).

Net-cash was at $0.42 at end 2015, share price was at $0.42. Market (and I too), I suppose, was waiting for very bad result which never realized.

Jun16 result - net cash jumped to $0.52, share price followed but took some days. Now, excluding all other assets, the share price is 1 PE only, after net-cash. Even using its worst FY (2015) result of $0.028, its PE is 3 only.

I don't know how to predict its biz in future but right now, imho, it's not expensive at all. In fact, it's very cheap relatively to other over-leveraged o&g coys.

As for its order book, if one goes just slightly further back to fy12 to fy14, 170m is actually normal (lowerest at 119.2m, mar13) and its eps then were also okay.

As for its biz prospects, I think customers now would certainly prefer to stick to companies with high net-cash than low-bidding ones, hopefully. And smaller projects are safer.

-v, so I'm biased.

[Life is a game]

I am vested too but I am inclined toward Blue Kelah comments judging how this stock fare in the past. unlikely it can generate such interest in a short span of time unless there is a higher anticipation of something big is coming. well I guess everyone has their own intrinsic value of this stock.

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[Clement]

Er my 2 cents. Co A can be undervalued on a standalone basis while be relatively overvalued at the same time.

I agree with the line of thinking. The question is, if a stock is undervalued on a standalone basis, does it really matter if it is relatively overvalued, and relatively overvalued on what basis? Are we comparing to the stock's recent price,  past multiples or comparable company multiples?

Financial valuation is more of an art than a science and different individuals might put more weight on different factors.

[specuvestor]

Er my 2 cents. Co A can be undervalued on a standalone basis while be relatively overvalued at the same time.

I agree with the line of thinking. The question is, if a stock is undervalued on a standalone basis, does it really matter if it is relatively overvalued, and relatively overvalued on what basis? Are we comparing to the stock's recent price,  past multiples or comparable company multiples?

Financial valuation is more of an art than a science and different individuals might put more weight on different factors.

IMHO the way to look at it is PEC is an alpha stock. That means mgt strategy & business metrics has outperform their peers in the industry

That does not mean they are immune to industry slowdown as BlueKelah pointed out. So for me this is one stock to look at when sector recovers, just like the other alpha stocks I mentioned like yangzijiang and yanlord

[BlueKelah]

I am vested too but I am inclined toward Blue Kelah comments judging how this stock fare in the past. unlikely it can generate such interest in a short span of time unless there is a higher anticipation of something big is coming. well I guess everyone has their own intrinsic value of this stock.

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Yes that is what I am trying to point out. If not for the analyst bump it will still be languishing around 40c-50c. There is either something brewing or if nothing is brewing, I expect the excitement to die down and when the speculators exit it should go back to tiny volume. 

Congrats on your vesting in PEC    seems like a good year for you.. Had it not been for the history of lowish dividend yield I would have loaded up some PEC liao, they really don't have too be keeping so much cash. 

-n v-

[Scg8866t]

I am vested too but I am inclined toward Blue Kelah comments judging how this stock fare in the past. unlikely it can generate such interest in a short span of time unless there is a higher anticipation of something big is coming. well I guess everyone has their own intrinsic value of this stock.

Sent from my SM-N9005 using Tapatalk

Yes that is what I am trying to point out. If not for the analyst bump it will still be languishing around 40c-50c. There is either something brewing or if nothing is brewing, I expect the excitement to die down and when the speculators exit it should go back to tiny volume. 

Congrats on your vesting in PEC    seems like a good year for you.. Had it not been for the history of lowish dividend yield I would have loaded up some PEC liao, they really don't have too be keeping so much cash. 

-n v-

If you look at their balance sheet closer, PEC has ard 140mil worth of progressive billing and trade payables, if you treat these as money owed, their net cash becomes much more unimpressive. My view.