Overview of Pekat Group Berhad

Pekat Group Berhad is an established provider of solar photovoltaic (PV) systems and earthing & lightning protection (ELP) solutions in Malaysia. The company has a strong reputation in the industrials sector, complemented by a diversified business portfolio and a focus on sustainability.

The stock is currently priced at RM1.06 per share, with a target price of RM1.30, reflecting an upside potential of 22.6%. The company is well-positioned for growth, driven by its robust orderbook, healthy cashflows, and a strategic amalgamation of EPE Switchgear.

Key Business Divisions and Growth Drivers

1. Solar Photovoltaics (PV)

The solar PV segment remains a central pillar of Pekat’s operations. In 9M24, the segment experienced a year-on-year (yoy) revenue growth of 5.7%, contributing RM124.2 million to total revenue. The company installed solar PV systems with a cumulative capacity of 150.6 MWp in 2023, leading to an estimated reduction of 155,822 tonnes of carbon dioxide emissions. This underscores Pekat’s commitment to environmental sustainability.

2. Earthing & Lightning Protection (ELP)

The ELP segment has shown remarkable growth, with a 32.3% yoy revenue increase in 9M24, amounting to RM32.6 million. The segment has secured an orderbook of RM115 million for data center earthing and lightning works, which provides strong earnings visibility through 2025-26. Major projects include those for data centers in Elmina and Microsoft.

3. Trading Division

The trading division achieved an impressive 48.3% yoy revenue growth in 9M24, contributing RM40 million to the total revenue. This reflects the increasing demand for Pekat’s trading solutions, which include supply of transformers and other electrical components.

4. EPE Switchgear

Following the consolidation of a 60% equity stake in EPE Switchgear, Pekat expects this division to significantly contribute to its revenue base. EPE Switchgear specializes in designing and fabricating power distribution equipment, such as switchgears and compact substations for medium voltage use. The company is set to benefit from Malaysia’s National Energy Transition Roadmap (NeTR) and rapid growth in data centers.

Financial Performance

UOB Kay Hian projects Pekat to achieve a three-year earnings compound annual growth rate (CAGR) of 42% from 2023 to 2026. The company’s net turnover is expected to grow from RM227.5 million in 2023 to RM726.3 million in 2026. Key financial highlights include:

• 2024F Revenue: RM313.5 million
• 2025F Revenue: RM635.4 million
• 2026F Revenue: RM726.3 million
• 2024F Net Profit: RM20.3 million
• 2025F Net Profit: RM34.1 million
• 2026F Net Profit: RM40.5 million

The solar and ELP segments reported yoy revenue increases of 21% and 44%, respectively, in 9M24. Additionally, Pekat’s management has committed to maintaining cost discipline, which could lead to margin expansion, especially with higher-margin contributions from EPE Switchgear.

Active Capital Management and Dividend Prospects

Pekat’s strong cashflows pave the way for active capital management. The company is considering a dividend mandate with an annual payout ratio of 30%, translating to a dividend yield of 1-2%. Furthermore, Pekat is exploring a potential transfer to a main board listing, which could enhance its valuation and investor appeal.

Valuation and Recommendation

UOB Kay Hian maintains a “BUY” recommendation for Pekat Group Berhad, with a target price of RM1.30 (up from RM1.19). The target price is pegged to a 2025F mean PE of 25x. Key re-rating catalysts include:

• Stronger-than-expected earnings trajectory
• Active capital management initiatives
• Potential main board listing

The company’s robust earnings growth, coupled with its leadership in the solar and ELP segments, makes it an attractive investment proposition.

Environmental, Social, and Governance (ESG) Initiatives

Environmental

Pekat has made significant strides in sustainability by installing energy-efficient solar PV systems and implementing energy-saving measures in its offices. Initiatives such as motion sensor-activated lights and LED lighting have further reduced electricity consumption.

Social

The company values workforce diversity and equity. As of FY23, Pekat employed 245 individuals, of which 29% were female. The board itself comprises 33% female representation, reflecting a commitment to gender diversity.

Governance

Pekat’s board includes six members, with four independent directors and two non-independent directors, including the Group CEO. This balanced governance structure ensures transparency and accountability.