Pekat Group Berhad - Bagged an ELP contract
Tue, 13-Aug-2024 07:15 am
by Tan Sue Wen • Apex Research

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PEKAT (0233)

Target Price (RM)

1.20

Recommendation

Buy

Summary

Pekat secured a RM21.8m contract to provide ELP solutions for Gamuda's data centre facility. 

Latest ELP contract win raises Pekat’s outstanding order book to RM206.6m (51.2% ELP, 48.8% Solar) which will be recognised till FY25F.

We reiterate our BUY recommendation with an upgraded target price of RM1.20 by pegging by sum-of-parts (SOP) valuation.

 

Company Update

  • New ELP contract secured. Pekat was awarded an ELP contract worth RM21.8m from Gamuda Engineering Sdn Bhd, which involves the testing and commissioning of ELP systems for eight data centre sites. The project is expected to commence on Jul 24 and is targeted for completion by Feb 26. We expect the contract would be able to command double-digit EBITDA margins.

  • Reinforcing position in data centre space. While this is not Pekat’s first data centre-related project; the Group has previously engaged in provision of ELP solutions for several projects, including Bridge DCs, Keppel DCs, Yondr facilities, and AirTrunk facilities. We see this move as a further reinforcement of their track record, allowing them to capitalise on the growing trend of data centres.

  • Orderbook update. The latest ELP contract win raises Pekat’s outstanding order book to RM206.6m (51.2% ELP, 48.8% Solar). We estimate that more than half of these fast-track projects will be executed and recognised in FY24F. Over the near term, we expect Pekat’s order book replenishment to come primarily from the tender for the 800.0MW CGPP, where we estimate the Group could secure up to RM200.0m in EPCC contracts. Looking ahead, the upcoming 2GW LSS5 which tender closed at the end of July 24 and additional 450.0MW NEM quota, cements future orderbook replenishment outlook.

  • Valuation. We kept our earnings estimates unchanged, given that our projections have already factored the anticipated orderbook replenishment. We expect Pekat’s FY24F earnings to improve mainly on recognition from existing unbilled orderbook and recognition from CGPP projects. We maintained our BUY recommendation with unchanged TP at RM1.20, based on a sum-of-parts (SOP) valuation.

  • We favour Pekat for its synergistic business model, attractive in-house solar financing, lucrative margins from the EPE segment, and its consistent maintenance of an order book at the RM200.0m. We believe Pekat is well-positioned as one of the RE players benefiting from long-term NETR trends, potentially generating strong earnings visibility in the foreseeable future, leveraging by arm of EPE division.

  • Risks. (i) EPE acquisition taking-longer-than-expected, (ii) reversal of solar module prices and, (iii) CGPP project recognition was slower than anticipated and (iv) intense market competition.

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