Small-Cap Conference Day

Recently, TA Research hosted a Small-Cap Conference Day and invited Mr. Fong Wern Sheng, the Group CEO of PGF Capital (PGF), as one of the main speakers for the event. In a 45-minute presentation, Mr. Fong shared his valuable knowledge on the production process of glass wool panel. In addition, he also gave his insights on the short- to medium-term outlook for the demand and supply as well as opportunities and threats in the building insulation industry. Before closing his presentation, Mr. Fong touched on ESG matters, which he believed will be the one of the core values the company will embrace to solidify its market leader position in the insulation industry in Malaysia.

Q&As

Q: Is PGF’s expansion plan to raise the annual output of glass wool panel by more than double, i.e., from 25,000mt/yr to 65,000mt/yr, a little too aggressive?

A: Underpinning the global effort to combat climate change, there are more than 140 countries, including Malaysia and Australia, have committed to achieve net-zero emissions by 2050. This would bode well for the demand for glass wool panel, thanks to its unique role in building insulation as a part of energy efficiency management. To comply with Australia National Construction Code and Malaysia Energy Efficiency and Conservation Act 2024, building insulation would likely be a prerequisite in the future. As such, we think our expansion is absolutely necessary and timely to prepare the group to meet the resurgent future demand.

Q: What will be PGF’s net gearing post completion of the expansion plan in FY27 and how would this affect the company’s dividend policy?

A: The group’s net gearing would likely increase to 0.8x post completion of the new manufacturing facility in Kulim East in FY27. The increase in gearing will not affect the existing dividend payout policy of 25%.

Q: What is the status of application for NTAX@NCER Tax Incentives (figure 1)?

A: The results will be made known by 1Q25. The chance of getting the tax incentive is high. Note that RM240mn capex is earmarked for the new manufacturing facility in Kulim. This amount can be used to partially offset the taxable income once the new plant is operational, if the government approved PGF’s application for the tax incentive.

Q: PGF supplied glass wool panels to a few mega projects, e.g., KVMRT, Singapore MRT, SPE Highway, etc. Will PGF bid for Penang LRT subcontractor works?

A: For Penang LRT project, we would consider bidding for the contract to install the sound barrier system, which would be tendered out soon. The chance of getting the job is bright as PGF would have an edge over its competitors with its existing manufacturing plant in Penang. We believe this would provide the company some pricing advantage to win the bid.

Q: Will PGF’s housing development in Tanjung Malim face a further delay in terms of project launch?

A: There has been some new progress on PGF’s housing development in Tanjung Malim. We have been notified by Lembaga Air Perak that a new water source has been identified to provide the water supply to our project. We are currently working closely with the state agency to solve the matter on water pipe laying issue. Note that PGF’s Tanjung Malim housing project is ready for launch once the impending water issue is resolved.

Forecast

No change to our FY25-27 earnings projections. The information gathered during the Q&A session has largely been factored into our forecasts, except the tax incentive and Penang LRT subcontractor work.

Valuation

We maintain the sum-of-parts valuation (SOP) at RM3.00/share for PGF (Figure 2) with an ESG rating of . At RM3.00, the implied PE of 16x 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 - 5 Feb 2025