Like its stock performance, our first visit to PGF Capital’s (PGF) glass wool insulation plant in Perai was “hot” and astonishing. Our group of seven visitors were greeted by CEO Mr. Fong and Operations & Transformation Director Mr. James Tan, who have shared invaluable information and knowledge about glass wool production. No change to our earnings projections. We reiterate our Buy recommendation on PGF with an unchanged target price of RM2.76.

Site Visit to PGF’s Glass Wool Insulation Plant

We were given a quick run-down on the glass wool production process (Appendix A) before the plant tour began. During the briefing, management played a video (Figure 1) about its new manufacturing plant in Kulim East, which we can see the land has already been cleared and flattened for construction works to begin. Figure 2 showed a picture of the plant when it is completed by 1Q26 (refer to 4QFY26), which will boost the group’s total annual capacity to 65,000mt from 25,000mt currently.

We observed piles of recycled glasses in the plant and warehouse. According to management, the company would usually keep 2.5 months of raw materials needed to avoid production disruption. Inside the warehouse, we can also see tonnes of finished products waiting for shipments in the beginning of 2025. According to management, the year-end production would usually sit in its Penang warehouse longer in December and January period due to lack of dockworkers working during the year-end festive seasons in Australia. This would help to explain why PGF’s profit tends to slow in 4Q of financial year ended February, then pick up from 1Q (Mar-May) onwards.

Looking forward, FY26 manufacturing earnings growth would likely be driven by cost management as the existing plant is already running at full capacity. As far as selling price is concerned, management expects the ASP to remain elevated as the demand is expected to stay robust over the medium term. Note that Australia is more than 20,000 properties behind the federal government’s target to build 1.2mn new homes by 2029. The latest Australian Bureau of Statistics building approvals revealed 15,498 new homes were approved for construction in 2024, which are 4,502 below the Albanese government’s target in the National Housing Accord. In view of this, we believe the demand and ASP would be firm and the new Kulim plant would be the key driver to fuel PGF’s earnings growth from FY27 onwards.

Before we end the meeting, the management has shown us the mineral wool sandwich panels produced by its principal company, Centria International, which have been used in Microsoft’s data center (DC) in Singapore, Apple Inc.’s DC in Mongolia and China. PGF has recently received SIRIM approval and now pending BOMBA certifications before the group can start bidding for DC projects in Malaysia using these mineral wool sandwich panels.

Forecast

No change to our FY25/26/27 earnings projections.

Valuation

We maintain the sum-of-parts valuation (SOP) at RM2.76/share for PGF (Figure 1) with a ESG rating of ***. At RM2.76, the implied PE of 14.5x 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 - 10 Dec 2024