PEC

[Clement]

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-

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.

It is normal and optimal for such companies to try to manage cash flow at the project level, so the trade and other payables must be considered with the trade receivables and unbilled revenue. 

The progress billing in excess of costs are not cash settled liabilities but actually deferred income. It is actually one of the more attractive points of the company to me, the discipline to get contracts with good progress billing terms, therefore generating cash flow as the project progresses while minimising credit and cancellation risks.

[Clement]

Having reread my posts on the thread, I realize that, for the purpose of debate, I might have come across as more bullish than I intended to be.

Let me summarize my views on the company.

As Bluekelah has pointed out, the company has limited revenue visibility in the project works segment going forward and is facing headwinds. As a result, it has been trading below net cash per share a few months ago and a recent run up in the share price has left it still trading at only a slight premium to net cash per share.

PEC has a large net cash balance on the balance sheet. The large cash hoard provides some downside protection in the event things don’t pan out as planned and can be used to pay suppliers in the event of customer defaults. In the event that the order book is not replenished and existing projects are completed, the net cash hoard can be seen as excess cash and can be returned to shareholders.

PEC is expanding operations in the Middle East. In the previous annual reports, the management has stated that the company is eyeing the Middle East as a growth market. Expansion in the Middle East is a logical move as the oil producers invest in storage and refining capacity, to move down the oil and gas supply chain, to capture more value as well as supply their own growing domestic markets for refined products. Execution on the geographic expansion strategy has been strong, with a 165% increase in revenue from the UAE. Widening the customer base also puts the company in position to secure future maintenance contracts, expanding the recurring revenue base.

The Middle East expansion plan is executed prudently. There are risks to operating in the Middle East, especially with pressure on many regimes to cut social spending to adapt to a world of lower crude oil prices. The company mitigates the political risks and credit risks by being disciplined in securing favorable progress billing terms. With the industry increasingly favoring constructing the plant offsite in modules and then assembling it onsite, the expansion plans have so far also required minimal capital expenditure. This approach ensures that the company has minimal capital tied up in the region, is cash flow positive on the projects and minimizes potential financial losses in the event of a disruption. Evidence of this approach is in the net progress billings continuing to be in excess of revenue recognized, resulting in deferred income and the small amount of PPE located in the Middle East. With the order book being depleted, we will have to see if the company will compromise on this prudent approach to more effectively compete for project work.

All things considered, I agree that with the recent run up, the margin of safety is no longer what it was a month ago. However, in view of the factors above and the evidence of a proactive, value adding management team, I continue to view shares of the company as undervalued.

[bargainhunter]

What if PEC wins a big contract? Would that make the outlook a bit more secure? the previous 40c price had priced the company below net cash and based on a depleting orderbook.

Some examples (not the same industry) are companies which had been quiet for a long time. cash rich, no outlook, shareholders given up hoping for new orders type. in the past month or so, have seen Hock Lian Seng win a 1.1b (60% jv with sembcorp) changi airport project and sing holdings just yesterday (70% jv with wee hur) for fernvale plot of land. Could PEC be working on something big rather than just pump and dump?

[BlueKelah]

What if PEC wins a big contract?  Would that make the outlook a bit more secure?  the previous 40c price had priced the company below net cash and based on a depleting orderbook.

Some examples (not the same industry) are companies which had been quiet for a long time.  cash rich, no outlook, shareholders given up hoping for new orders type.  in the past month or so, have seen Hock Lian Seng win a 1.1b (60% jv with sembcorp) changi airport project and sing holdings just yesterday (70% jv with wee hur) for fernvale plot of land.  Could PEC be working on something big rather than just pump and dump?

Yes outlook would be better if big contract win. However that also depends on the contract and how much they bid at.

Hock Lian Seng was not quiet, it has boom quite a bit already compared to couple years back. In any case, 1.1b changi airport contract might not be that high margin at all, which is common with gov projects. Sing holdings fernvale also they bid quite high so if anymore downtrend in local property scene they could end up making very little also..

If? and Could? are just questions. If you buy based on this if and could its just speculation. The recent spike is probably pump due to the analyst report, and recent increasing oil price is helping.

[Clement]

What if PEC wins a big contract?  Would that make the outlook a bit more secure?  the previous 40c price had priced the company below net cash and based on a depleting orderbook.

Some examples (not the same industry) are companies which had been quiet for a long time.  cash rich, no outlook, shareholders given up hoping for new orders type.  in the past month or so, have seen Hock Lian Seng win a 1.1b (60% jv with sembcorp) changi airport project and sing holdings just yesterday (70% jv with wee hur) for fernvale plot of land.  Could PEC be working on something big rather than just pump and dump?

Yes outlook would be better if big contract win. However that also depends on the contract and how much they bid at.

Hock Lian Seng was not quiet, it has boom quite a bit already compared to couple years back. In any case, 1.1b changi airport contract might not be that high margin at all, which is common with gov projects. Sing holdings fernvale also they bid quite high so if anymore downtrend in local property scene they could end up making very little also..

If? and Could? are just questions. If you buy based on this if and could its just speculation. The recent spike is probably pump due to the analyst report, and recent increasing oil price is helping.

The market is obviously expecting some order wins, and the expectation is not entirely unjustified. I don't analyse a company's investment merits just based on recent share price movements and prefer to compare the current price with what we are getting.

Let's examine the opportunity set the company is working with. There are several plant improvement projects being considered on Jurong island, a new liquid bulk terminal planned for Jurong port and numerous oil refinery expansion / construction projects in various stages of planning in the Middle East. In fact, a contract for about $1 billion was awarded to Technip for such work in Jebel Ali just 2 weeks ago. Of course, just because the opportunity is there does not mean the company will benefit, but, as investors, we cannot be too pessimistic.

For investors, the problem becomes how do we price in the uncertainty with any margin of safety? Do we value the company assuming 0 future order wins? I think for PEC, given that the net cash on the balance sheet already represents 84% of market cap at current prices and the maintenance segment which provides some recurring revenue, the value at risk is manageable.

[bargainhunter]

What if PEC wins a big contract?  Would that make the outlook a bit more secure?  the previous 40c price had priced the company below net cash and based on a depleting orderbook.

Some examples (not the same industry) are companies which had been quiet for a long time.  cash rich, no outlook, shareholders given up hoping for new orders type.  in the past month or so, have seen Hock Lian Seng win a 1.1b (60% jv with sembcorp) changi airport project and sing holdings just yesterday (70% jv with wee hur) for fernvale plot of land.  Could PEC be working on something big rather than just pump and dump?

Yes outlook would be better if big contract win. However that also depends on the contract and how much they bid at.

Hock Lian Seng was not quiet, it has boom quite a bit already compared to couple years back. In any case, 1.1b changi airport contract might not be that high margin at all, which is common with gov projects. Sing holdings fernvale also they bid quite high so if anymore downtrend in local property scene they could end up making very little also..

If? and Could? are just questions. If you buy based on this if and could its just speculation. The recent spike is probably pump due to the analyst report, and recent increasing oil price is helping.

The market is obviously expecting some order wins, and the expectation is not entirely unjustified. I don't analyse a company's investment merits just based on recent share price movements and prefer to compare the current price with what we are getting.

Let's examine the opportunity set the company is working with. There are several plant improvement projects being considered on Jurong island, a new liquid bulk terminal planned for Jurong port and numerous oil refinery expansion / construction projects in various stages of planning in the Middle East. In fact, a contract for about $1 billion was awarded to Technip for such work in Jebel Ali just 2 weeks ago. Of course, just because the opportunity is there does not mean the company will benefit, but, as investors, we cannot be too pessimistic.

For investors, the problem becomes how do we price in the uncertainty with any margin of safety? Do we value the company assuming 0 future order wins? I think for PEC, given that the net cash on the balance sheet already represents 84% of market cap at current prices and the maintenance segment which provides some recurring revenue, the value at risk is manageable.

when it was 40+c, that was exactly how the market was valuing it, pessimistic to the point of assuming zero new contracts and even discounting net cash!  at that point, the margin of safety was huge.  at the current price, the margin of safety is of course lower than then but as you pointed out, market is still assuming no contract wins and any win could still set the stock moving upwards.  i agree with you that we should not be too pessimistic and simply write it off as mere speculation.  If we wait till the "if and could" become reality, then the price would also reflect it already just like how the stock gapped up from 43c to 48c the day after the results after announcing the 3c dividend.  there was no chance to buy between 43.5c and 46.5c.

[BlueKelah]

As I warned, 1Q17 results out yesterday.

PEC has become loss making. More importantly revenue has dipped to sub 100m level from 150m+/quarter levels previously. Order book is slowly being wittled down to nothing. As we can see, there have been no new order gains coming in from anywhere. Looks like PEC will have to start cutting cost and chopping some heads to tide through this hard times...

Orderbook
S$161.8 million excluding maintenance contracts as at 30 June 2016
S$139.7 million as at 30 September 2016

Accordingly, IMHO share price will sink back to 50c+ level again. Co. will have to do more share buy backs to sustain the the share price. The euphoria from the CUM DIvidend and recent bump in oil above $50 will be evaporating. However at 57c it is below net cash level liao so maybe 55c+ will be the new norm for this stock.

[Against the backdrop of slower world economic growth and lower oil prices, CAPEX investments and demand in the global process sector have been adversely impacted. This has translated into fewer projects and more intense competition.
Oil prices have since stabilised and there has been an increase in project enquires, especially in the Southeast Asian and Middle Eastern regions.
In this challenging environment, PEC aims to realise more opportunities from our existing network and customers in the above regions. However, these enquires may take time to materialise and may not contribute immediately to our financial results.]

Caveat emptor

[BlueKelah]

Surprised by this small event, even though debt already provisioned for and PEC has plenty of cash. 

08 Feb 2017


STATUTORY DEMAND BY NICHIAS (SINGAPORE) P/L AGAINST MAJOR INSULATION & LINKS (MIL) MARKETING P/L

The Board of Directors of PEC Ltd. (the “Company”, together with its subsidiaries, the “Group”)
wishes to announce that the Company's 51%-owned subsidiary, Major Insulation & Links (MIL)
Marketing Pte. Ltd. (“MIL”) has received a letter dated 26 January 2017 from the solicitors of Nichias
(Singapore) Pte Ltd ("Nichias") stating that it is a statutory demand pursuant to Section 254(2)(a) of
the Companies Act (Cap. 50) ("Statutory Demand") for payment of the sum of approximately S$1.25
million ("Debt").
The Statutory Demand was received at the office of MIL's company secretary, which was, however,
closed from 27 January 2017 to 30 January 2017. The Statutory Demand was subsequently posted to
MIL on the afternoon of 2 February 2017 and reached MIL's letterbox on 6 February 2017. This matter
was brought to the attention of the Company on 6 February 2017.
The Statutory Demand states that if MIL fails to pay the Debt plus any further interest accrued as at the
date of payment or to secure or compound the same to the reasonable satisfaction of Nichias within 3
weeks of MIL's receipt of the Statutory Demand, Nichias would be entitled to file a winding up
application for MIL to be wound up, on the grounds that it is unable to satisfy its debts as they fall due.
MIL has approached the Company for assistance, and the Company has made arrangements to
resolve issues raised in the Statutory Demand with Nichias.
The principal amount of the Debt had been fully provided for in the Company's financial statements for
the first quarter ended 30 September 2016. In view thereof, the Statutory Demand for payment of the
Debt is not expected to have any material adverse impact on, inter alia, the financial position, business
and operations of the Group.


Which makes me wonder, is it just poor business practice to let its subsidiary owe money until get chase by other firm's lawyer or is PEC having some cash flow problems, hence delaying the payment of this debt?(it seems PEC already provision for this debt earlier on so why not pay up instead of risk getting lawyer letter and ruin reputation??

[BlueKelah]

another profitable quarter but orderbook is on track to run out by september this year.

Orderbook (excluding maintenance contracts)
S$161.8 million  as at 30 June 2016
S$139.7 million as at 30 September 2016
S$107 million as at 31 DEC 2016

[Although the oil and gas industry remains highly competitive and challenging, we have witnessed a higher level of enquiries for project works in the region and the demand for maintenance services is also expected to grow.

Despite the difficult market conditions, the Group has been actively developing its overseas business and has recently won our first major maintenance contract in Vietnam to maintain the entire Nghi Son Refinery and Petrochemical Complex for a period of seven years.

We are also actively participating in several tenders in Asia and the Middle East to build up the orderbook which stands at S$107 million as at 31 December 2016, excluding maintenance contracts.]

Sound a bit optimistic to me. I will intepret as more enquiries for work (likely just maintaineance type) and not getting able to get any tenders in Asia or Middle East.

[BlueKelah]

Announced within the hour after market close.
==================================================================

Reference is made to the announcement of PEC Ltd. ("Company")on 8February 2017 ("8February
Announcement")in relation to the receipt of a statutory demand ("Statutory Demand")by the
Company's 51%-owned subsidiary,Major Insulation & Links (MIL)MarketingPte. Ltd. (“MIL”)from the
solicitors of Nichias (Singapore)Pte Ltd ("Nichias").
The Board of Directors of the Company wishes to announce that it was informed on 20 February 2017
that MIL has been served with an originatingsummons ("Originating Summons")issued by the High
Court of the Republic of Singapore,taken out by Nichias. The Originating Summons was taken out
pursuant to an application by Nichias to wind up MIL in connection with the matters stated in the
Statutory Demand.
Further to the 8February Announcement and consultations with the Company,MIL had approached
Nichias on 10 February 2017 with a proposal to resolve the Debt. Nichias,however,did not respond
to the said proposal. Given MIL's current financial position and business outlook,the Board of
Directors is of the view that it is not in the interests of the Company and its shareholders to provide
further fundingto support MIL's operations.
The Company and MIL are currently seeking legal advice in respect of the foregoing,and the
Company will make further announcements as appropriate in due course and on any other material
developments as and when necessary.