MARKET PULSE: PEC, Telecoms Sector (17 Sep Jul 2012)

Stock Name: PEC
Company Name: PEC LTD.

Research House: OCBC

Price Call: BUY

Target Price: 0.86

MARKET PULSE: PEC, Telecoms Sector

17 Sep 2012

KEY IDEA PEC Ltd: Bottom fishing Summary: PEC Ltd's (PEC) share price has fallen by almost half from its peak of S$1.37 per share in Jan 2011 and may have already bottomed out. We now see very deep value in the group, with its stock trading at 15% discount to its book value of S$0.79 per share with a net cash of S$0.44 per share or 64% of its market capitalization. Excluding its net cash value, it is trading at just 3x PER. Meanwhile, our channel checks inform us that the current pricing levels are too tight for the downstream EPC subcontractors to bear, and are unsustainable in the long run. We agree and therefore believe that a margin reversion may be possible in the near- to medium- term horizon. Upgrade to BUYwith a higher fair value estimate of S$0.86 (previously S$0.64). (Chia Jiun-Yang) MORE REPORTS Telecoms Sector: iPhone 5 to help LTE adoption Summary: Apple has unveiled the latest reiteration of the hotly popular iPhone, which will be available in Singapore from 21 Sep, which is 4G LTE-enabled and will work on the 4G networks being implemented here. As with the previous versions of the iPhone, we expect the demand for the new iPhone 5 to be pretty strong. We also expect the smartphone's popularity to help drive LTE adoption over the medium to longer term; this could eventually lead to a gradual recovery in margins as the faster LTE speeds are likely to encourage higher data usage. While we expect the iPhone 5 to help subscribers make the jump from 3G to 4G LTE, we still opine that LTE is still a 2013 story at best. Nevertheless, we continue to like the overall telco sector for its defensive earnings and attractive dividend yields (backed by strong operating cashflows). Maintain OVERWEIGHT. (Carey Wong)

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