Pekat Group Berhad - Bagged a CGPP contract
Mon, 23-Sep-2024 06:08 am
by Tan Sue Wen • Apex Research

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PEKAT (0233)

Target Price (RM)

1.20

Recommendation

Buy

Summary

  • Secured RM115.0m CGPP contract for a 29.99MW Solar PV Facility, raising outstanding order book to RM332.0m, which is equivalent to 1.5x FY23 revenue. 

  • Based on historical track record, we expect the project will be able to generate EBIT margin of 8.0%, which potentially translate to RM9.2m in EBIT over the project cycle. 

  • We reiterate our BUY recommendation with an unchanged target price of RM1.20, based on a sum-of-parts (SOP) valuation.

 

Company Update

  • New contract secured. Pekat, through its wholly-owned subsidiary Pekat Solar, has secured a Letter of Award from MF Solar Tronoh for the EPCC of a 29.99MW Solar PV Facility under the Corporate Green Power Programme (CGPP).

  • CGPP details. The CGPP project will have a capacity of 29.99MW and will be built in Daerah Kinta, Perak is valued at RM115.0m. The project is expected to commence in 4QFY24 and achieve COD by end-2025, assuming no delay.

  • Orderbook update. The latest contract win raised Pekat’s outstanding order book to RM332.0m, equivalent to 1.5x FY23 revenue. We anticipate about one-third of the project's value will be recognised in FY24, with the highest recognition occurring in FY25 as the work reaches its peak. We anticipate this contract to achieve a better margin than the industry average, based on the historical performance of contracts secured by Pekat. Assuming EBIT margin of 8.0%, the project is estimated to generate RM9.2m in EBIT over its lifecycle.

  • Earnings revision. No changes to our earnings forecasts, as the contract win falls within our FY24F order book replenishment assumption of RM315.0m.

  • Valuation. We reiterate our BUY recommendation on Pekat with an unchanged target price of RM1.20, derived from SOP valuation method. We favor Pekat for its product complementarity synergy, attractive in-house solar financing, strong margins in the EPE segment poised for robust earnings growth. Pekat is well-positioned to benefit from long-term NETR trends, potentially generating strong earnings visibility in the foreseeable future, by leveraging on the robust growth of the EPE division.

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

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