• MYR0.49 FV based on 13x FY25F (Jun) P/E, on par with the FBM Small Cap Index (FBMSC). PA Resources is poised for a 20.5% 3-year earnings CAGR supported by its ambition to double manufacturing capacity and capitalise on the rising demand in the solar industry. Additionally, the multi-year contract extension from First Solar offers long-term revenue visibility and is a testament to its manufacturing capabilities. Current valuation of 8.1x FY25F (ROE:16%) is at a compelling level to buy into the company’s solid track record in delivering earnings growth and robust fundamentals.

• Capitalising on First Solar’s growing demand. According to Wood Mackenzie, global solar photovoltaic (PV)-installed capacity is projected to more than triple over the next decade, driven by governments' and corporations' decarbonisation efforts. This growing demand presents an opportunity for PARB, as its largest client, First Solar, anticipates USD4.6bn in revenue for FY24F (+39% YoY), supported by rising global demand for solar energy and improved ASPs. First Solar's plan to increase production capacity to 25GW by 2026, up from 16.6GW in 2023, is expected to contribute to higher order volume for PARB.

• Record-high contract extension. PARB secured its fourth contract extension with First Solar in Jan 2024 worth MYR1.1bn for 1.5 years (or MYR180m/quarter) for the supply of aluminium frame parts – the previous contract was worth MYR550m for one year (or MYR137.5m/quarter). The contract extension is also a testament to its strong capabilities and track record despite other competitors kept trying to penetrate its customers. To accommodate the new contract, PARB expanded its production capacity from 2.8k tonnes per month to 3.2k tonnes per month in 2QFY24. Operating at full capacity, the recent contract extension should keep the company busy throughout FY25F.

• Demand-fuelled expansion. PARB received a range of business inquiries from existing and new industries but is currently unable to accept orders due to capacity constraints. To address this, PARB has acquired an 18-acre parcel of land for the construction of a new plant that will double its capacity. The expansion will take place in three phases – with the aim to increase capacity from 3.2k tonnes per month to 7k tonnes in FY26. This new plant will serve existing clients, while also enabling PARB to develop new products for new customers across different industries, thereby diversifying its revenue base.

• Beneficiary of US trade policies. PARB stands to benefit from the US tariff hike on Chinese aluminium imports (from 7.5% to 25%), aimed at curbing global overcapacity and trade circumvention. With reduced Chinese competitiveness, we believe the company can fill the supply gap, increase its market share, and explore export opportunities to the US market.

• Downside risks include delays in expansion plans, loss of key customers, and drastic fluctuation of FX.

Source: RHB Research - 29 Oct 2024