PEC Review

PEC established in 1982, and currently positioned itself as a plant and terminal engineering specialist which provides engineering, procurement and construction service and maintenance service to MNCs. It operates in four industries: oil and gas, petrochemical, oil and chemical terminal, and pharmaceutical industry. The share is currently trading at 0.615 which has PE 9.92 and PB 0.69.

The group only got two executive directors - Ms Edna Ko and Mr Robert Dompeling (Ms Edna Ko is the spouse of Mr Robert Dompeling). Ms Edna Ko is also the largest shareholder of PEC with 35 million direct interest and 85 million deemed interest. Both Ms Edna Ko and Mr Robert Dompeling are entitled to Employee Performance Share Plan.

Cash flow of PEC doesn't looks good in FY2017, as they got higher accrued revenue and trade receivable. Take note that at FY2017 annual report, trade receivable represents 49% of total current asset of PEC. Meanwhile the company also got more than 100 million SGD of cash and cash equivalents which is equivalent to 42 cents per share! The group also got very healthy debt to equity ratio.

I got two major concerns with PEC. PEC is controlled by two executive directors, and they are related to each other. Therefore even though the chairman and CEO are two individuals, I am still worried about too much power concentrated on their hands. PEC didn't win any projects (except maintenance projects and the total value of it is not disclosed). In FY2017 annual report the group didn't mentioned anything about their order book level anymore, which doesn't sounds good to me. However in the FY2017 Annual report, Ms Edna Ko stated that there is a firm level of enquirers for project works and these jobs are expected to materialise  in FY2018.

Given the very uncertain outlook of the industry, I have decided not to add any shares at current price level, even though it is trading at low PE and PB. I would only add more shares when they secured major contracts or it is trading at very low PB. Given that the group didn't secure any project works and as stated in their IPO prospectus that their project works normally will be completed within two years, I assumed that the project work order book is extremely low, so their FY2018 revenue won't look good.

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