Unlucky or Poor Judgement

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Listed in SGX in 2009; PEC is a specialist engineering firm servicing the Oil & Gas, Petrochemical and Pharmaceutical industries. The company activities are categorised into:

1. Project Work: EPC or engineering, procurement and construction.

2. Maintenance Services: Plant maintenance and upgrading works. 

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Served markets includes: Singapore, China, India, Indonesia, Malaysia, Myanmar, Thailand, Vietnam and Middle East. 

Fabrication facilities are located in Singapore, Malaysia, Indonesia, Thailand, China and UAE. 

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Financial  (Fiscal Year ending June)

PEC business grew at a CAGR of 45% between FY06-08 prior to listing in SGX in Aug-2009. 

FY10 was the company best year: recording a gross profit of $53M and net profit of $44M. Cash & equivalent increased from $52M to $161M due to her strong performance and $30M raised from IPO. 

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This resulted in cash-to-total liabilities improving to 1.6 in FY11.

 

Net margin peaked in FY07, have weakened to below 3.8% from FY12.

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Challenges

In FY12 the PEC recorded a doubtful debt of $17.3M with Verwater Audex resulting in net profit falling from $31M to $11M YoY. 

 

In FY15, the firm recorded a doubtful debt of $17.8M because of Jurong Aromatic receivership. 

 

In FY20, the firm recorded a doubtful debt of $43M. A customer was attempting to raise fund and PEC was unsure if she will be paid. 

 

In Aug20, the company announced possible misappropriation of $1.6M by an employee in a China subsidiary.

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Balance Sheet

Since cash-to-total liabilities peaked in FY10, this ratio have declined to about 0.5. The firm's balance sheet at present is still healthy though no longer as strong as a decade ago.

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NTA per share in FY20 fell substantially due to the doubtful debt of $43M.

It is also worth noting that the company's receivables turnover had been increasing the past decade. The sharp increase in FY17-19 was due to the significant fall in revenue stream.

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Wages & Salaries (W&S)

Attempts to lower W&S were made around each crisis period in FY12 and FY15. However relative W&S have been rising steadily from 24.3% to 37.2% between FY08-19 (AR-2020 not released at time of review).

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Opinion

Two years after IPO, PEC financial performance had been unremarkable. Substantial increase in wages & salaries in light of the mediocre performance seems to imply a flawed reward system. 

 

Repeat high doubtful debt continue to plague the firm to this day; eroding her net asset value and balance sheet strength. 

If this past decade is a reflection of the next; the company could face an existential crisis resulting in diminishing shareholders value.

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Time is long overdue for the board and management to review why these challenges occured, how they could better manage projects & maintenance risks and a renumeration system tied to PEC long term performance.