We initiate coverage on PGF Capital (PGF) with a Buy recommendation. The target price is RM2.76, representing a strong upside of 72.7%. PGF plays a crucial role in global warming with its low-cost, non-combustible and effective building insulation solution, i.e.: glass wool. Also, it is one of the largest landowners in Tanjong Malim (Tg. Malim), possessing 1,311 acres of leasehold land adjacent to Proton City. Based on the market price of RM45psf, the value of the land is 3 times greater than PGF’s market capitalisation. We believe this would make PGF a potential privatisation or M&A target in the future.

• PGF has sold out of its FY24 glass wool capacity and has resorted to Thailand imports to meet the rising demand.

• There is business opportunity in abundance from having huge landbank besides Proton City.

• For the time being, PGF will focus on property development, durian plantation and ecotourism for cash flow and recurring income purpose.

• PGF is a carbon-neutral company. About 200 tonnes of CO2 is saved over a period of 50 years for each tonne of CO2 generated in the glass wool production.

• PGF uses recycled glass as the main raw material in glass wool production, thereby reducing the landfill pollution.

• PGF’s FY24/25/26 profits are expected to be RM10.3/41.9/42.6mn based on assumptions below:
  
  i. The production of glass wool to grow to 21.2k, 23.8k and 27.6k mt for FY24, FY25 and FY26, respectively with utilisation rates to be between 85-95%;
  
  ii. Recognition of land sales gain of RM21mn in FY25 as the JV housing project is expected to achieve the conditional 80% booking rate;
  
  iii. PGF would rake in property sales of RM180mn in FY26. The EBIT margin is estimated at 40%;
  
  iv. Contributions from agriculture and aquaculture segments to be insignificant until FY27; and
  
  v. Maintaining a dividend payout policy of 25%.

Source: TA Research - 29 Jan 2024