Summary
Pekat’s 4QFY24 core net profit (CNP) surged by 235.8% yoy and 182.8% qoq to RM9.6m, bringing FY24 CNP to RM21.3m, which came above our and consensus estimates at 123.3.% and 118.1%, respectively. The outperformance was largely due to lower-than-expected operating cost (admin cost).
Prospects remain bright, supported by clear RE initiatives rolled out and newly acquired business, which comes with a profit guarantee of RM9.6m/annum over the next three years, set to drive the Group's growth trajectory. Currently holds an outstanding orderbook of RM590.9m, including new contract wins of RM97.3m from TNB.
Post-rolling over our valuation base year to FY26F, we upgrade PEKAT to BUY with higher target price of RM1.43, based on a Sum-of-Parts (SOP) valuation and appraised with three-star ESG rating.
Above expectations. Pekat recorded core net profit of RM9.6m in 4QFY24 (+235.8% qoq, +182.8% yoy), bringing the FY24 total to RM21.3m (+63.1% yoy). The result exceeded both our and consensus expectations, making up 123.3% and 118.1% of full-year forecasts respectively. The outperformance was largely due to lower-than-expected operating cost (admin cost). 4QFY24 CNP was adjusted for EIs of RM2.3m, mainly comprising bad debt adjustment (RM0.4m), reversal of impairment (RM1.4m), forex loss (RM0.6m) and others (RM0.2).
QoQ. Core net profit grew 235.8%, largely due to i) reduction of administrative cost (-22.2%), ii) cost savings from lower solar modules costs (-11% qoq to 0.09 sen/w as of Dec 2024), iii) higher project execution from ELP solutions, driven by data-center-related projects, (+21.8% in revenue), and iv) a new contribution from the recently acquired power distribution division (+RM9.9m in revenue). CNP up 6.7%-pts to 10.2%, which we reckon is mainly due to higher contribution from better margin ELP and EPE Switchgear businesses.
YoY. FY24 CNP increased by 182.8%, mainly attributed to improvements across all business segments and the factors mentioned earlier. CNP margin improved by 4.4-pts to 10.2%.
Contract win. EPE Switchgear has secured a contract worth RM97.3m from TNB for the supply and delivery of 11kV of single busbar circuit breakers for TNB’s distribution network. The contract period is two years and is effective from 25 Feb 2025, with an option for a 30% add-on based on the contract value. Assuming the contracts exercise of the 30% option, coupled with a double-digit GP margin, this could translate into an average annual GP of RM15.8m, representing 10.8% of our forecasted Group FY25 gross profit.
Outlook. Solar prospects remain bright due to the clear RE initiatives rolled out to accelerate the nation’s RE ambitions. These include an additional 800MW quota for NEM3.0, a 400MW BESS programme, SELCO, 2GW of LSS5, 2GW of LSS5+, and plans to introduce a new cycle of LSS6. We believe these factors present strong potential for EPCC job flow, contributing to Pekat's growth trajectory with a strong focus on the solar field. Separately, we are also optimistic about the newly acquired EPE Switchgear, which is set to benefit from the upgrade and replacement cycles from TNB that occur every 8-10 years. With more than 50 years of active experience in the market, and as one of the handful of vendors for national utilities, we expect the Group to continue securing consistent job flow from TNB. Note that deal includes a profit guarantee of RM9.6m/annum, which is expected positively contribute to the Group's bottom line c.30% of FY25F CNP. Currently, the business holds a tender book of c.RM400m. After incorporating the new contract win, Pekat's outstanding orderbook stands at RM590.9m (44% from solar, 40%from EPE, 15% from ELP, and the remainder from trading), which is equivalent to 2.0x FY24 revenue.
Earnings revision. We have fine-tuned our earnings forecast for FY25, mainly accounting for: i) higher project billings from CGPP projects, and ii) higher contributions from solar business, driven by the strong roll-out of recent RE initiatives. We also introduce our FY26F core net profit at RM42.6m. The new contract win is in line with our expectations, and we have made no changes to the EPE Switchgear business.
Valuation & Recommendation. Post-rolling over our valuation base year to FY26F, we upgrade PEKAT to BUY (from hold) with higher target price of RM1.43 (previously RM1.17), based on a Sum-of-Parts (SOP) valuation and appraised with three-star ESG rating. We remain in favor of Pekat for its synergistic business model, strong margins in the EPE segment, and sustainable order book. Noted that Pekat’s strong historical financial results qualify the Group for the transfer to the Main Board of Bursa Malaysia.
Risk. Heavy reliance on government initiatives. Inability to secure new contracts. Spike in raw material costs such as copper and steel.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.451181 | 4.487974 |
EUR | 4.938764 | 4.946105 |
CNY | 0.607808 | 0.608296 |
HKD | 0.573694 | 0.577958 |
SGD | 3.324704 | 3.349527 |