• 9M24 core earnings rose 15% YoY to RM11m on stronger growth across business segments

• Operationally, PBT was within expectations, but core net profit missed our expectations on higher-than-expected tax

• Tweak our 2024E earnings by 12% to reflect a higher tax while maintaining our TP at RM1.15. Maintain BUY

Higher 9M24 core earnings but miss expectations on higher tax

Pekat’s 9M24 revenue grew 16% YoY to RM197m, attributable to higher sales volume for its trading segment (+48%) and accelerated projects recognition from the earth and light protection (ELP) (+32%) and solar (+6%) segments. 9M24 EBITDA margin rose 1.7ppts to 10.5% on higher revenue from the ELP segment. The higher revenue and margin lifted 9M24 core net profit to RM11m (+15% YoY). Overall results accounted for 64% of our and 63% of consensus full-year forecasts, respectively. While core pretax profit was in line with expectations, core earnings came in lower than expected due to a higher effective tax rate of 32%.

Weaker margin due to revenue mix

Sequentially, 3Q24 revenue surged 46% QoQ to RM83m on higher contributions from the solar segment (+64%) and increased sales volume in the trading segment (+37%). However, the EBITDA margin contracted 5ppts QoQ to 8.3% due to higher contribution from the lower- margin trading segment. This quarter, the effective tax rate was higher at 34% due to certain expenses not allowable for a tax deduction, prior-year provisions, and losses incurred at certain subsidiaries. The weaker margins and higher effective tax dragged 3Q24 core earnings lower to RM3m (-35% QoQ).

Maintain BUY with TP of RM1.15

We tweak our 2024E earnings by 12% to account for a higher effective tax rate. We reiterate 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 government RE policy changes, project execution delays, intense market competition, and volatility in solar PV panel prices.

Source: Philip Capital Research - 29 Nov 2024