Results preview

PGF Capital (PGF) is expected to announce its 1QFY25 results performance at the end of this month. We expect the quarterly profit to account for less than 20% of full-year earnings, totalling RM6mn to RM8mn, as we have factored in a lumpy land sales gain in the final quarter of FY25. This land sales gain would emanate from the joint development of Tanjung Malim land (GDV: RM300mn) with Malvest Properties, where PGF would be able to recognise the land disposal, which would provide the gain of estimated RM21mn upon achieving a booking rate of 80%.

With regards to 1QFY25 results, we expect the rise in profit (est. >50%) to come solely from its manufacturing segment, which benefitted from resurgent exports of glass wool to Australia. The increase in exports would lead to higher operational efficiency, thereby contributing to higher margins. Besides supplying to the housing development in Australia, PGF has been awarded a contract to supply 300mt of glass wool to the new Western Sydney International Airport until the end of 2025.

Looking forward, we expect the manufacturing division to propel FY25-26 earnings higher, underpinned by stringent housing requirements in Australia as well as the roll-out of infrastructure projects such as LRT and airport expansion in Penang. The proliferation of demand will require the company to heed an expansion plan due to a capacity shortage. The current annual capacity of 25,000mt of glass wool has technically been utilised, as evidenced by increased revenue. As such, the company is searching for land in Kulim or Banting or is even considering converting the existing warehouse in Seberang Prai to make way for additional capacity. As far as funding is concerned, the new capital injections from the founder would certainly help the funding requirement without jeopardising its gearing position. Note that the Fong family has recently converted 25.4mn ICPS to provide some 20mn additional capital to PGF.

Forecast

No Change to Our FY5-26 Profit Projections.

Valuation

We maintain the sum-of-parts valuation (SOP) at RM2.76/share for PGF (Figure 1), which has an ESG rating of ★★★. At RM2.76, the implied PE of 12x CY25 EPS is considered fair for an investment in a carbon-neutral company, which will stand to gain from robust demand and regulatory support in future. Maintain Buy

Source: TA Research - 12 Jul 2024