Pekat Group Berhad - Secures RM135.2m TNB Contract
Mon, 19-May-2025 07:32 am
by Tan Sue Wen • Apex Research

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PEKAT (0233)

Target Price (RM)

1.55

Recommendation

Buy

  • Pekat’s 60%-owned EPE Switchgear secured a RM135.2m LOA from TNB for 33kV/11kV GIS supply, installation, testing, and commissioning, starting 9 May 2025 for two years, with a 30% additional value option.

  • This is EPE’s second TNB contract this year, totalling RM232.5m. Orderbook replenishment prospect is expected to sustain, driven by a ~RM350m tender book and TNB’s nearly doubled switchgear tender value.

  • We have raised earnings forecasts by 14.4%/11.7% for FY25F/FY26F, after revising a higher orderbook replenishment for EPE.

  • Following the earnings revision, we maintain a BUY rating with a higher target price of RM1.55 (from RM1.43), based on a sum-of-parts (SOP) valuation, and appraised with a three-star ESG rating.

 

Secures RM135.2m TNB Contract. Pekat, via its 60%-owned subsidiary EPE Switchgear, has secured a RM135.2m LOA from TNB for the supply, installation, testing, and commissioning of 33kV and 11kV gas-insulated switchgear (GIS) for TNB’s distribution network. This contract is effective from 9 May 2025 for a duration of two years and includes an option for up to 30% additional value (~RM40.6m).

 

Our Take. This is a positive development for Pekat, as it supports the Group’s earnings growth through FY26F. Assuming the 30% optional value is exercised and a 25% GP margin, the contract could yield an average annual GP of ~RM22m, accounting for ~13.7% of our forecasted Group FY25F GP. We believe the option is likely to be exercised, driven by the energy transition agenda under NETR and TNB’s substantial RM42.9bn capex for grid upgrades under RP4, as switchgear systems are critical for integrating RE loads while maintaining grid reliability. Following recent contract wins, Pekat’s unbilled orderbook is estimated at ~RM726.2m, equivalent to 2.5x FY24 revenue, ensuring earnings visibility for 2–3 years.

 

Outlook. This marks EPE’s second TNB contract this year, totalling RM232.5m (excluding the 30% optional value). We expect order replenishment momentum to sustsain, driven by ~RM350m tender book and TNB’s nearly doubled tender value for switchgear, reflecting robust grid upgrade demand. As a key TNB vendor with a five-decade track record, EPE is well-positioned to capture additional contracts, supporting Pekat’s growth trajectory.

 

Earnings revision. In light of strong demand in the switchgear segment, we have raised our orderbook assumption for EPE Switchgear to RM400m/RM450m (from RM250m/RM350m) for FY25F/FY26F respectively. Consequently, we have revised our earnings forecasts upward by 14.4%/11.7% for FY25F/FY26F respectively.

 

Valuation & Recommendation. Following the earnings revision, we maintain our BUY rating with a higher TP of RM1.55 (from RM1.43), based on a SOP valuation and assigned a three-star ESG rating. 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. Heavy reliance on government initiatives. Inability to secure new contracts. Spike in raw material costs such as copper and steel.

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