P.A. Resources Bhd (PA, 7225), is the country’s leading aluminium extruders and fabricators for the solar panel industry. Leveraging on its (i) latest RM1.07bn contract win from First Solar; (ii) expanded extrusion capacity by 35%; (iii) improving margins as a result from previous cost optimization exercises and prevailing lower natural gas prices, we forecast earnings to grow 25% CAGR from FY23 to FY26. BUY with a TP of RM0.41 based on 11x PER over FY25 EPS of 3.7sen, justified by its larger market cap compared to its Bursa peers.

PA has successfully obtained its fourth contract extension from its largest customer First Solar (contributes >90% of revenue), valuing RM1.07bn, far higher than the previous contract extension value of RM550m. The latest contract for the period from 2 January 2024 to 1 July 2025 (18 months), encompasses the supply of aluminum frame parts to produce photovoltaic modules. In view of this, PA’s recentcompleted extrusion capacity expansion from 2,600MT (metric tonnes) per month (already 90%-utilized) to 3,500MT per month is timely as it allows PA to immediately execute on this fourth contract. Meanwhile, PA also stands to benefit from (i) its cost optimization investments; (ii) declining natural gas cost, while being shielded from aluminum cost fluctuation due to its cost-plus pricing model. As such, we are confident of PA’s solid earnings growth potential of 25% CAGR for FY24 to FY25.

Going forward, PA plans to increase its current extrusion capacity, further driven by (i) sustained demand from its largest customer, First Solar; (ii) customer base diversification – PA has received numerous business inquiries from other customers but is unable to fulfill due to prevailing production capacity limitations. To a certain extent, PA is also a beneficiary of the ongoing US – China trade war as most of its First Solar shipments are delivered to the US. Meanwhile, the Company is on a constant lookout to expand and improve its operations to better improve overall efficiencies.

The company’s balance sheet is solid with a net cash position of RM29.7m as at 1QFY24. We also expect PA to pay dividend of 0.6sen and 0.9sen for FY24 and FY25 respectively. This translates into yields of 1.9% and 3.1%, aligning with its historical distribution pattern.

Source: Rakuten Research - 19 Jan 2024

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