Review

• PGF Capital’s (PGF) 1HFY25 core profit of RM16.2mn, after stripping out forex losses of RM2.4mn, beat our expectations of RM12.4mn-14.4mn (see report dated 10 October 2024). This positive earnings surprise was due to stronger-than-expected demand for glass wool insulation products. Noted that 1H25 core profit accounted for 38.6% of our fullyear forecast as there would be a lumpy land sales gain of RM21mn to be recognised in end-FY25.

• 1HFY25 core profit increased by more than five times on the back of higher revenue and stronger margins. Revenue surged 41.4% to RM82.9mn underpinned by proliferation of demand for glass wool insulation products, which resulted in 14%-pts rise in PBT margin due to higher production efficiency.

• QoQ, 2QFY25 core profit was stronger at RM9.7mn compared to RM6.4mn a quarter ago. The decent performance was due to shortage of housing supply in Australia, leading to robust demand for building materials.

• For this quarter, the company declared a first interim dividend of 2sen/share, which will be payable on 29 November 2024.

Impact

• No change to our FY25-27 earnings projections, pending management guidance on the outlook in an analyst briefing next month.

Outlook

• The demand for glass wool insulation is expected to remain strong in Australia as the government has strived to increase housing supply in a bid to address the shortage crisis. Locally, the demand would be driven by the roll-out of infrastructure projects such as LRT and airport expansion in Penang.

• In Budget 2025, it was mentioned that Automotive High-Tech Valley (AHTV) in Tanjung Malaysia remains the focus as one of the key developments in 2025, spearheaded by Proton and Geely. As such, we are hopeful that Prime Minister Anwar Ibrahim can bring home some good news after his meeting with president Xi and premier Li in China next month. Note that the Prime Minister Anwar’s previous visit to China last year has yielded positive results as Geely pledged to invest USD10bn for the next 10 years to turn Tanjung Malim into the largest auto city. This is expected to spur housing demand in Tanjung Malim, which would bode well for PGF’s housing projects next to the AHTV.

Valuation

• We maintain the sum-of-parts valuation (SOP) at RM2.76/share for PGF. Maintain Buy

Source: TA Research - 29 Oct 2024