Solar District Cooling Group Berhad (SDCG, 0321) is debuting on the Bursa Ace Market today. SDCG is primarily engaged in the provision and maintenance of Building Management Systems (BMS), solar thermal systems, energy-saving services, and the maintenance of systems and equipment. We expect FY23-FY26F earnings to grow at a robust CAGR of 17%, driven by burgeoning order book via the group’s more aggressive approach to private sector projects. SDCG has a total unbilled order book of RM22.8m, which is expected to be recognised up to FY26F. Balance sheet is healthy with a net gearing ratio of 0.03x as of Dec FY23. BUY with a FV of RM0.45, based on an FY25F PE of 18x, in line with its small- cap industry peers.

SDCG has built a strong presence in Malaysia’s energy efficiency market, offering services across key sectors such as healthcare, hospitality, and industrial buildings. It has cultivated an impressive track record and established long-term relationships with three of its top five customers, each spanning over five years.

The company has recently embarked on significant expansion plans, including the enlargement of its current headquarters in Kajang, Selangor, increasing the built-up area from 8,230 sq ft to 14,000 sq ft (+70%). This is to support the company’s growing workforce and enhance its operational capacity. Essentially, the expansion enables SDCG to handle larger projects and meet increasing demand, ultimately supporting long-term business growth.

SDCG also plans to invest in new tools, equipment, and ICT software within 36 months of the listing to improve efficiency and capabilities in both the BMS and solar thermal system segments. This strategic initiative is expected to strengthen its market presence and extend its services to a larger customer base.

The Malaysian Government has embarked and promoting energy efficiency plans since 2013, with the Ministry of Health leading the high-impact energy projects. SDCG has an advantage in providing energy performance services to both public and private hospitals, acting as a subcontractor to carry out energy efficiency related work namely the installation of hybrid solar thermal hot water systems.

All said, as Malaysia's economy continues to grow alongside positive trends within the construction sector, SDCG can capitalise on this momentum, aligning with its focus on advanced BMS solutions. This growing market segment offers SDCG ample opportunities to secure more contracts, enhancing its market position and driving earnings growth.

Source: Rakuten Research - 19 Sep 2024

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