Pekat Group Bhd (PEKAT), a prominent solar photovoltaic (PV) and earthing and lightning protection (ELP) specialist is making its debut on the ACE Market today. We are positive on the industry outlook due to rising demand of renewable energy (RE) along with government’s initiative to boost RE usage and believe PEKAT is in good position to ride on the wave. BUY with a target price of RM0.65 based on 22x PER FY22 as per the average valuation of industry peers.

Incorporated in 1999, PEKAT is principally involved in the design, supply and installation of solar PV systems and power plants, supply and installation of ELP systems as well as trading business in distribution of electrical products and accessories. Solar division is the main revenue contributor (57.4%), followed by ELP division (21%) and trading (21.6%) in FY20. We see huge potential for Malaysia solar PV industry due to favourable initiatives by government to push for RE. These include Large Scale Solar PV project, Net Energy Metering programme and other encouraging tax incentives. In addition, government set an ambitious target to achieve 20% of RE in national installed capacity by 2025.

Of the RM44.4m raised from the IPO, RM18.0m or 40.5% will be earmarked for construction of new head office and operational facilities, targeting to finish by March 2023. The new head office (114,252 built-up sq ft) is integrated with a show case, central monitoring station, training centre, workshop and warehouse. To expand work force, PEKAT is looking to hire 10 additional personnel for sales and marketing to cover larger geographical area and larger pool of customers and will continue to add headcounts for project (13 staffs) and maintenance teams (10 staffs). With higher work force, PEKAT intends to increase provision of maintenance service for solar PV facilities. Finally, RM12.7m will be utilised for this workforce expansion to strengthen solar PV and ELP divisions.

As at 3rd May 2021, orderbook of solar and ELP divisions are healthy at RM154.9m, equivalent to 1.2x of FY20 revenue. Purchase orders for trading division is at RM12.4m. Post listing, gearing ratio will improve from 0.43x to 0.17x, providing ample room to undertake more projects. PEKAT does not have a formal dividend policy. All in all, we believe PEKAT is well-positioned to benefit from the RE wave further expedite by the government’s awareness. Given PEKAT’s track record, we expect more solar PV orders win for PEKAT along with resumption of construction job flows for the ELP division.

Source: Rakuten Research - 23 Jun 2021