Pekat Group Berhad - Below expectations
Fri, 29-Nov-2024 07:36 am
by Tan Sue Wen • Apex Research

Counter

PEKAT (0233)

Target Price (RM)

1.17

Recommendation

Buy

Summary

  • Pekat’s 3QFY24 core net profit (CNP) dropped by 42.8% yoy and 10.7% qoq to RM2.9m, bringing 9MFY24 CNP to RM11.8m, which came below our expectations and consensus estimates at 56.5% and 65.6%, respectively.

  • Key deviation was mainly due to the hike in administrative costs and increase in effective tax rate.

  • After adjusting our earnings forecast to account for the higher administrative expenses and higher effective tax rate, we maintain a BUY recommendation with a lower target price (TP) of RM1.17, based on a sum-of-parts (SOP) valuation.

     

Results Review

  • Missed expectations. Pekat’s 9MFY24 core net profit (CNP) came in at RM14.8m, which is 56.5% of our full-year estimate and 65.6% of the consensus forecast.

 

  • QoQ. 3QFY24 CNP after adjusting for a one-off RM3.2m gain from the disposal of PPE, dropped by -42.8% to RM2.9m, despite a strong 46.1% increase in revenue to RM82.6m. The weaker bottom line was mainly due to a sharp 72.6% jump in administrative costs and an  increase in effective tax rate, driven by non-deductible expenses (ESOS expenses and EPE Switchgear acquisition-related expenses). Improved top line was thanks to higher project execution in the Solar segment (+64.0%), steady growth in the ELP segment (+4.2%), and increased sales orders in the Trading segment (+36.9%).

 

  • YoY. CNP dropped by -10.7% to RM2.9m, largely due to the factors mentioned earlier. Core net profit margin declined to 3.5%, compared to 5.2% in the same quarter last year.

 

  • Outlook. We understand that Pekat is more of a margin-preserving player, focusing on rooftop projects rather than large-scale solar farms. With the shortlisted winners for the 2GW LSS5 projects expected to be announced in near future, we believe Pekat stands to benefit, but in a measureable manner, given its focused strategy. Coupled with the ongoing deflation in solar module prices (see chart below), the additional 400MW quota allocated under the NEM scheme, the extension of the GITA, and solar rebates ranging from RM1,000/kWac to RM4,000/kWac, these factors should further spur interest in solar investments and position Pekat for solid growth over the long run. Separately, we anticipate the finalisation of the SPA with Apex Power Industry to acquire a 60% stake in EPE Switchgear by Dec 24, as the Group nears the completion of the deal.

 

  • As of 30 Sep 24, Pekat’s outstanding orderbook stands at RM360.0m (equivalent to 1.6x FY23 revenue), with more than half deriving from solar projects, including recently secured RM115.0m CGPP project.

 

  • Earnings revision.We have revised our FY24F/FY25F CNP downward by -12.1%/-2.0%, as we factor in higher administrative expenses and higher effective tax rate specifically for FY24F.

 

  • Valuation. Following the revised forecast, we maintain our BUY recommendation for Pekat, with a lower TP of RM1.17, based on a Sum-of-Parts (SOP) valuation. We remain in favor of Pekat for its synergistic business modelstrong margins in the EPE segment, and sustainable order book. We also noted that Pekat’s strong historical financial results qualify the Group for the transfer to the Main Board of Bursa Malaysia.

                                          

  • Risks. EPE acquisition taking longer than expected. Escalation in solar module costs. Heavy reliance on government initiatives. Intense market competition.

 

Solar module price trend

As of 18 Nov 2024, solar module prices experienced a further decline, dropping to USD 0.09/watt from USD 0.10/watt in the previous month.

Read more details in:

Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.436869 4.470612
EUR 4.675505 4.679374
CNY 0.611103 0.611560
HKD 0.570272 0.574102
SGD 3.296965 3.319254