• We noted strong activities at Pekat’s newly acquired EPE Switchgear premises supported by strong order flows from TNB

• We remain optimistic on EPE’s prospect underpinned by its RM170m unbilled order book and the upcoming commercialisation of its new Feeder Pillar product

• Maintain BUY rating with an unchanged TP of RM1.15

Visit to newly acquired EPE Switchgear

We recently organized a site visit to EPE Switchgear’s (EPE) production facility in Nilai, Negeri Sembilan. The production facility has an estimated annual production capacity of more than 2,000 switchgear panels, specializing in Gas-Insulated Switchgear (GIS), Ring Main Unit (RMU), and Air-Insulated Switchgear (AIS) for the medium voltage segment (1-44kV). It is currently running at an average utilisation rate of c.60%, underpinned by orders from local utilities players including TNB, Sarawak Energy, and Sabah Electricity Sdn Bhd (SESB), which have historically contributed 70% of their orders, followed by local private industries (20%) and export (10%) to countries in various regions such as Qatar, Sri Lanka, Oman, Australia, and Germany.

Prospect supported by order book and introduction of new product

Looking ahead, we expect increased activities at EPE to be supported by the unbilled order book of c.RM170m providing revenue visibility over 2025-26E, while tender book is at c.RM500m. Additionally, EPE has also recently secured the certificate of acceptance (COA) for its new Feeder Pillar product, which incorporates a smart monitoring system designed to meet the updated specifications required by its main clients. With the COA, EPE is positioned to commercialise its feeder pillars to key target clients including TNB and SESB, with a potential addressable market of 8-10k units annually, driven by installations in new developments. Overall, we remain optimistic on the prospect of EPE which is underpinned by the on-going grid infrastructure upgrade cycle by TNB, we expect EPE to contribute 30- 35% to our 2025-26E forecast of the group (3-yr profit guarantee of RM48m).

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 - 19 Dec 2024