• We remain optimistic on Pekat’s prospects, supported by ample opportunities from the upcoming LSS5 and the synergistic acquisition of EPE Switchgear

• The outstanding order book of RM360m (+66% QoQ) is expected to drive stronger sequential earnings in 4Q24

• Maintain BUY rating with an unchanged TP of RM1.15. A potential near-term catalyst is the award of the LSS5 programme expected in Dec24

Strong order book to support sequential earnings

We remain positive on Pekat’s prospects, which are supported by steady growth across its business divisions, with the acquisition of EPE Switchgear set to accelerate earnings growth further. The company’s order book stands at RM360m (+66% QoQ), with the solar segment making up the lion’s share at 64%, followed by ELP (33%) and trading (3%). We expect stronger sequential earnings momentum in 4Q24, underpinned by the robust order book and margin expansion from increased ELP revenue, as Pekat commences work for the RM22m data center (DC) contract secured from Gamuda. In the future, we expect the ELP division to continue benefiting from the rapid growth of the DC sector, with 13 projects secured from major operators such as Google, Microsoft, and Yondr, all of whom are planning for further expansions.

Early Christmas present ahead?

We expect the award for the 2GW quota under the LSS5 programme to begin in Dec24, with RM7bn EPCC contracts up for grabs. Pekat has submitted multiple bids as a technical partner for prospective asset owners that would allow them to participate as the EPCC contractor. Pekat also bid as an asset owner through a joint venture, which would further strengthen its recurring income base. Elsewhere, the acquisition of 60% equity interest in EPE Switchgear is on track for completion in Dec24. This is expected to help drive strong earnings growth in 2025E. Based on the profit guarantee of RM48m over the next three years, this acquisition is expected to increase Pekat’s earnings by RM10m (or 61% of its 2024E earnings base).

Maintain BUY with TP of RM1.15

We maintain our BUY rating on Pekat with an unchanged SOP-derived target price of RM1.15, which implies a 22x forward 2025 PE. We continue to like Pekat for its synergistic businesses that are set to benefit from Malaysia’s RE initiatives. Key downside risks include project execution delays, intense market competition, and volatility in solar PV panel prices.

Source: Philip Capital Research - 2 Dec 2024