• Pekat is well-positioned to capitalize on significant opportunities arising from Malaysia’s RE initiatives, Tenaga infrastructure upgrades, and the surge in DC investments

• We project 3-year net profit CAGR of 43% over 2023–26E, driven by growth in the solar segment, increased ELP orders from DC projects, and the newly acquired EPE Switchgear benefiting from Tenaga’s grid upgrades

• Initiating coverage with a BUY rating and RM1.15 target price

Positioned for growth in RE space

Pekat specialises in installing solar photovoltaic (PV) systems and provides earth and lightning protection (ELP) systems. Pekat’s proven track record in delivering rooftop solar PV systems positions the company to leverage the ongoing developments in the Net Energy Metering (NEM) programme, as well as a range of utility-scale solar projects, including Corporate Green Power Programme (CGPP) and the upcoming Large-Scale Solar 5 (LSS5). The growth of its ELP division is fuelled by a rise in data centres (DCs) investments and major public infrastructure projects on the horizon, such as the Penang LRT, Johor LRT/ART, and MRT3.

Riding on Malaysia’s growing energy demand

The strategic acquisition of EPE Switchgear allows Pekat to seize more growth opportunities, particularly as Tenaga undertakes upgrades to the grid infrastructure. This growth is further bolstered by the increasing RE adoption, rising electricity demand, and a surge of investments in DCs. We project Pekat to achieve a robust 3-year net profit CAGR of 43% over 2023–26E, supported by its strong RM564m order book, core businesses capitalizing on the structural growth of the solar and DC segments, synergy leverage, and promising replenishment prospects that will further enhance its growth potential.

Initiate BUY with TP of RM1.15

We initiate coverage on Pekat with a BUY rating and SOP-derived target price of RM1.15, which implies a 22x forward 2025 PE. Pekat’s strong presence in high-growth sectors allows it to gain a competitive edge and capture a larger market share in Malaysia’s evolving energy landscape. Key downside risks include changes in government policy, slower-than-expected order book replenishment, escalation in solar module prices, and unforeseen project cost overruns and delays.

Source: Phillip Capital Research - 16 Oct 2024