PEC Limited

Unlucky or Poor Judgement

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. 

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

Financial Performance  (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. 

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.

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.

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.

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.

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).

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.

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.

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