• PEC’s S$9.2m net profit in 2Q10 (FYE Jun) was better than expected.
• 30.4 Scts net cash per share as of end 2Q10 equals 43% of current share price.
• Possible upside surprises from: 1) sustained high profit margins, and 2) >S$50m orders in Feb-Jun 20
• Raises target price to S$1.06, on improved earnings outlook. Maintain

Better than expected profit in 2Q10. Net profit rose 65% to S$9.2m in 2Q10 (FYE Jun), attributed to higher and above industry’s average gross profit margin of 24%, and higher sales recognition that tends to be lumpy in nature. S$360m order book as of end 2Q10. We estimate that PEC has secured S$32m worth of small (

Recommendation
Improved earnings outlook for FY10 (FYE Jun). We have raised our net profit estimates to S$23.5m in FY10, vs. S$19.4m previously, based on higher 23.5% gross profit margin assumption, vs. 22.9% previously. There may yet be upside surprise to our FY10 estimates, should PEC’s newly secured S$245m contract in Malaysia contributes earlier in 1H 2010, vs. our expectation of 3Q 2010. No change to our FY11 earnings forecasts.

Raises target price to S$1.06. We have raised our target price for PEC to S$1.06, based on 12x blended FY10/11 PE on repair and maintenance, and 9x on project works. We believe that PEC’s larger order book and better profit margins have improved earnings visibility. Near term price catalyst may come from PEC securing >S$50m in new orders in Feb-Jun. Maintain BUY on PEC.