Pekat Group Berhad - Single Quarter Record High Earnings
Wed, 21-May-2025 07:37 am
by Tan Sue Wen • Apex Research

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PEKAT (0233)

Target Price (RM)

1.87

Recommendation

Buy

  • Pekat’s 1QFY25 core net profit (CNP) surged by 185.3% qoq and 286.2% yoy to RM14.6m, which accounted for our and consensus estimates at 38% and 37%, respectively. The outperformance was largely due to stronger-than-expected performance in the Solar division.

  • Post-results, we have raised our earnings forecasts upwards by 58.3/36.2% for FY25F/FY26F respectively.

  • We remain positive on EPE Switchgear’s business and believe Pekat will be a key beneficiary under Regulatory Period 4 (RP4), as switchgear is a critical system used in power distribution systems. Incorporating recent LSS5 and CGPP project wins, we estimate Pekat’s unbilled orderbook at RM615.2m, equivalent to 2.1x FY24 revenue.

  • Post-earnings revision, we maintain our BUY recommendation with a higher target price of RM1.87 (from RM1.55), based on a Sum-of-Parts (SOP) valuation and assigned a three-star ESG rating.

 

Above expectations. After adjusting for impairment (+0.7m) and others (+0.1m), Pekat’s 1QFY25 core net profit (CNP) of RM14.6m exceeded expectations, accounting for 38% of our full-year FY2025 forecast and 37% of consensus estimates. The outperformance was largely driven by better-than-expected performance in the Solar division, supported by improved contributions from C&I rooftop solar installations.

 

QoQ.  CNP surged by 185.3%, which we believe is due to (i) stronger contribution from the Solar division driven by 69.9% surge in the segmental revenue, (ii) greater contribution from ELP segment on the back of 10.3% growth in segmental revenue, and (iii) two more months of contribution from the EPE Switchgear (acquired in Dec 2024) in the Power division. Topline growth for the Solar segment is driven by greater execution in the C&I solar rooftop projects which we think could be due to 14.2% hike in base tariff announced by TNB for the upcoming regulatory period (2025-2027) and the commencement of revenue recognition from CGPP EPCC projects, which is expected to sustain until end-2025. CNP margins expanded from 3.6% to 9.7%, supported by greater contribution from Power Distribution segment that commands better margins. Additionally, we believe a favourable project mix from Solar divisions.

 

YoY. CNP soared by 286.2%, mainly attributed to improvements across all business divisions except the trading division (-11.2% in revenue) as well as additional contribution from EPE Switchgear.

 

Outlook. We expect sustained earnings improvement on a qoq basis, supported by greater revenue recognition from CGPP-related EPCC projects as the CGPP projects enter the accelerated growth phase of the s-curve and greater demand for switchgear systems driven by recent major contract wins from TNB amounting to RM135.2m. We remain positive on EPE Switchgear’s business and believe Pekat will be a key beneficiary under RP4, as switchgear is a critical system used in power distribution systems. Incorporating recent wins, we estimate Pekat’s unbilled orderbook at RM615.2m (53% EPE, 28% Solar, 18% ELP and 2% Trading), equivalent to 2.1x FY24 revenue.

 

Earnings revision. Post-results, we revised our orderbook assumptions for the solar division to RM300m/RM200m for FY25F/FY26F, from RM250m/RM150m previously to reflect stronger demand for solar rooftop solutions. We have yet to factor in any potential contribution from BESS projects. Consequently, we have revised our earnings forecasts upward by 58.3/36.2% for FY25F/FY26F.

 

Valuation & Recommendation. Post-earnings revision, we maintain our BUY recommendation with a higher TP of RM1.87 (from RM1.55), based on a SOP valuation and supported by a three-star ESG rating. We remain in favor of Pekat for its synergistic business modelstrong margins in the EPE division, 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. 

 

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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