Below expectations.After adjusting for non-core items (+RM0.1m), PEKAT’s 2QFY25 core net profit (CNP) came in at RM11.0m, bringing 6MFY25 to RM22.2m, which was below expectations, accounting for 37% of our FY2025 forecast and 41% of consensus. The shortfall was mainly attributable to weaker EPCC performance, particularly in rooftop solar, following the expiry of SolaRIS incentives and the full allocation of NEM 3.0 quotas. The Group declared a first interim dividend of 1.0 sen during the quarter.
QoQ. CNP slipped 3.0% to RM11.0m, weighed down by softer residential rooftop demand under the EPCC segment (segmental revenue -32.6%) following the expiry of SolaRIS incentives and the full allocation of NEM 3.0 quotas. The decline was compounded by lower ELP contribution from slower project execution and higher finance costs arising from the consolidation of the power distribution segment and borrowings to fund CGPP projects. Nevertheless, core PATMI margin improved 1.0%-pts to 8.6%, supported by stronger power distribution (segmental revenue +27.9%) from the accelerated execution of recent TNB contract wins, which typically command higher margins.
YoY. CNP surged 143.2%, driven by (i) stronger C&I rooftop demand ahead of tariff hikes, (ii) new contributions from CGPP projects under the EPCC segment, and (iii) the first full-quarter consolidation of the power distribution segment. However, core PATMI margin contracted slightly (-0.3%-pts to 8.6%), reflecting a higher project mix from utility-scale projects, which typically command lower margins than rooftop installations.
Outlook. We expect PEKAT’s 3Q earnings to improve modestly, supported by CGPP projects entering the accelerated S-curve phase ahead of the end-2025 COD deadline. The C&I segment is expected to partially offset softer residential solar demand following the expiry of the NEM scheme, driven by the SELCO framework as corporates front-load investments to address mandatory BESS requirements ahead of 31 Dec 2025 deadline. Earnings visibility will also be reinforced by the power distribution division, supported by RM263.8m in TNB contract wins YTD and steady demand from private sector projects. News report suggest that the MyBeST Programme winner could be shortlisted by October, with projects valued at RM270m-RM300m and COD targeted for 2027. With a proven track record in delivering off-grid C&I projects, PEKAT is well positioned as a strong contender for EPCC contract wins.
Order book. As of 30 June 2025, PEKAT’s order book stood at RM665m (44.8% power distribution, 28.3% solar, 25.4% ELP, and the remainder from trading), representing 2.3x FY24 revenue.
Earnings revision. Post-results, we cut our earnings forecasts by 21.9 %/3.5% for FY25F/FY26F, reflecting more conservative assumptions for residential and C&I rooftop solar adoption. We now lower our rooftop solar order book replenishment assumption to RM150-220m (from RM200-300m) to capture a more neutral adoption outlook in light of recent government policy changes. Our forecasts have not yet factored in any potential contributions from the MyBeST programme.
Valuation & Recommendation. Following earnings revision, we have lowered our TP to RM1.72 (from RM1.87), based on SOP valuation and supported by a three-star ESG rating. We downgrade our recommendation to HOLD from BUY. Note that our TP has yet to factor in the recent private placement, which would lower fair value to RM1.52 based on forecasted FY26F EPS under the maximum scenario. We continue to favour PEKAT for its synergistic business model, strong margins in the Power distribution division, and sustainable order book. PEKAT’s strong historical financial results qualify the Group for a transfer to the Main Market 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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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.216494 | 4.249912 |
EUR | 4.923595 | 4.928588 |
CNY | 0.592163 | 0.592763 |
HKD | 0.540426 | 0.544215 |
SGD | 3.273679 | 3.296901 |