Summary
PEKAT’s 2QFY24 core net profit climbed 27.3% yoy and 22.9% qoq to RM4.7m, resulting in 1HFY24 core net profit at RM10.3m came within our expectations, accounting for 53% of our full-year forecast.
We expect earnings to improve in the subsequent quarters, driven by higher recognition of CGPP projects, while orderbook is set for further expand from CGPP, LSS5, NEM and CRESS programs.
We kept our earnings forecast unchanged and we reiterate our BUY recommendation with an upgraded target price of RM1.20 by pegging by sum-of-parts (SOP) valuation.
Results Review
Results review. In 2QFY24, the Group achieved a single quarter record breaking quarterly net profit of RM4.7m (+27.3% yoy and +22.9% qoq), thanks to better margins in the ELP and Trading divisions. Revenue for the quarter registered at RM56.6m, decreased by -4.9% yoy and -1.9% qoq, primarily due to project execution delays in the Solar division.
Within expectations. 1HFY24 core earnings came in within expectations, accounting for 53.0% and 57.6% of our and consensus’ full year estimates respectively. We believe subsequent quarters earnings will see further improvement from solar division mainly attributed by CGPP projects.
Operations Highlights. In 2QFY24, Solar segment's revenue declined -22.5% yoy and -9.6% qoq to RM33.2m, mainly due to project execution delays in the commercial and industrial customer segments. The weakness was partly cushioned by stronger revenue from the ELP (+47.1% yoy, +28.1% qoq) and Trading segments (+34.8% yoy, -0.8% qoq). Despite the lower revenue, the Group's core net profit improved and the core net profit margin expanded to 8.2%, from 6.6% in the previous quarter, driven by better margins in the ELP divisions.
Solar Landscape. The prospects for the RE sector remain bright, supported by the government's consistent rollout of 2.2GW of RE capacity per annum to achieve a 70% RE share by 2050. The recently introduced CRESS framework is expected to benefit EPCC players by attracting more interest in solar projects driven by ESG goals. Meanwhile, with solar panel prices hitting a historic low of USD0.10/watt due to oversupply; leaving EPCC players to benefit from cheaper sourcing.
Power Landscape. Malaysia is set to invest RM420.0bn in grid infrastructure to achieve a 70% RE capacity by 2050 under the NETR. More than half of the investment will channel towards distribution, with c.20% earmarked for MV switchgear, which potentially generates a RM44.0bn market opportunity for Pekat. This aligns with TNB’s plans to increase Capex by RM1-2bn, in addition to the targeted RM90.0bn, to support energy transition initiatives and system upgrades. The booming data center sector, with 74 supply applications totaling over 11GW in demand (equivalent to 40.6% of Peninsular Malaysia's installed capacity), further highlights the need for robust power distribution infrastructure, positioning Pekat for a favorable business outlook.
Outlook Pekat’s outstanding order book stands at RM217.1m is set to expand, mainly by the 800MW CGPP tender, where we reckon the Group could secure up to RM200.0m in EPCC contracts. Separately, the new introducing of CRESS, 2GW LSS5 and additional 450.0MW NEM quota, cements future orderbook replenishment outlook, potentially keeping Pekat busy until 2028. With the strong financial standings recorded over the years, we also note that Pekat is eligible to transfer to the Main Board of Bursa Malaysia.
Valuation. With the reported earnings coming within expectations, we kept our earnings forecast unchanged and reiterate our BUY recommendation with an unchanged TP of RM1.20, based on a sum-of-parts valuation. We favor Pekat for its synergistic business model, attractive in-house solar financing, strong margins in the EPE segment, and sustainable order book. Pekat is well-positioned to benefit from long-term NETR trends, potentially generating strong earnings visibility in the foreseeable future, leveraging by arm of EPE division.
Risk. (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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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.226942 | 4.260444 |
| EUR | 4.723982 | 4.728876 |
| CNY | 0.598324 | 0.598990 |
| HKD | 0.542537 | 0.546362 |
| SGD | 3.269503 | 3.292710 |