Swift Energy Technology (SET), the only certified player in explosion proof (Ex) solar PV systems in ASEAN, is strategically positioned to ride the region's growing focus on renewable energy (RE) within the oil and gas (O&G) upcycle. Regional giants (PTTEP, PTSC, Pertamina) are ramping up aggressively driven by favourable crude oil prices with net-zero commitment by 2050 guaranteeing continued green investments, making SET a key ASEAN player in driving energy innovation. We initiate coverage on SET with an OUTPERFORM call and TP of RM0.60.

The only Ex solar PV player in ASEAN. SET is one of only six Ex solar PV system providers globally and the sole player strategically positioned in ASEAN, holding over 50% market share in the region's O&G industry. Its competitive edge comes from: (i) establishing operations across multiple countries, allowing better access project bids, (ii) space-efficient panels offering higher power density in smaller area, and (iii) an integrated one-stop solution featuring monitoring & control system, diesel generators, and wind turbines.

Greening old energy players. SET's hybrid solar-wind systems offer a game-changing solution for both greenfield and brownfield platforms.

Petronas is at the forefront of this transition, adopting RE in new fixed-structure platforms and committing RM2b annually to net-zero initiatives since 2022. Despite concerns over CAPEX reductions, investment in clean energy is expected to persist. In addition, the brownfield segment presents significant potential. Based on our estimates, the total potential market size for brownfield projects are valued at least RM868m across Malaysia and Thailand.

Proxy to Wilmar's expansion plan. SET's earnings are set to rise, supported by Wilmar's recovering investment in retrofitting plant & machinery, a segment that has contributed 13%-24% of SET's revenue since FY21. Wilmar's retrofitting capex historically follows three-year boom-and-bust cycle with last peak in 2020. At the cusp of a new 4-year capex cycle, we expect retrofitting capex to triple to RM300m despite a normalisation in total capex spending, which is conservative compared to the RM500m peak retrofit capex in 2020.

Positioned at the heart of this upswing, SET is primed to leverage on Wilmar's renewed spending spree, driving explosive earnings growth.

26% order book growth, QoQ. SET's 4QFY24 order book surged 26% QoQ to RM70m mainly driven by its Ex solar PV system (+80% QoQ). This aligns with our view that Petronas, after initial delays in capex, is now expediting project rollouts. As PETROS finalises its gas agreement, Petronas is expected to ramp up spending by 2HCY25, alleviating capex reduction concerns and positioning SET for robust FY26 growth.

Forecasts. We project its FY25F and FY26F earnings to grow at 12% and 29%, respectively, driven by: (i) its outstanding order book of RM70m and a tender book of RM200m for ex-solar PV systems, (ii) rising regional upstream capex, and (iii) Wilmar's expansion plans.

114% upside from IPO price. We initiate coverage with an OUTPERFORM call with a TP of RM0.60 based on SoP valuation, valuing its solar related business at 30x FY26F PER, in-line with the average historical 1-year forward PER of the solar EPCC sector and its non-solar business at 16x FY26F PER, in-line with the M&E players (HEGROUP, PWRWELL and MNHLDG).

SET is set to debut on the ACE Market on January 8th, with a total IPO issuance of 250m new shares priced at RM0.28 each, giving the company a market capitalisation of RM280m. Notably, the stock offers a 25% free float and is Shariah-compliant.

COMPANY OVERVIEW SET specialises in industrial automation and power systems, serving diverse industries with key revenue contributions from: (i) O&G (45%), (ii) grain products, edible oils, and food manufacturing industries (25%), and (iii) utilities (18%). Since its establishment in 2001, it has delivered over 150 Ex-solar systems to the O&G sector. Adoption gained momentum after 2017, when SET introduced a full suite of product offerings, positioning itself as a one-stop solution provider.

Its main product offerings include: (i) process control system, (ii) Ex solar PV, (iii) power distribution system, and (iv) other system, all of which play a pivotal role in transitioning upstream oil field operations to green energy. SET's customer base in O&G includes industry giants like Shell, ExxonMobil, Chevron, Petronas, PTTEP, and PTSC. Headquartered in Malaysia, the group also operates in Thailand, Singapore, and China, extending its presence across the region.

At the helms of the company are:

1. Mr. Tan Bin Chee (Group Chief Executive Officer) who has over 30 years of experience in the energy, O&G industries specializing in electrical industrial products, with stints at Sony Electronics (M) Sdn Bhd, IBM World Trade Corporation and Tamco Electrical & Electronics (M) Sdn Bhd. Under his leadership, SET has transformed its business from trading activities in 2001 into an engineering solutions provider to serve the O&G as well as the grains and edible oil industries.
2. Mr. Chin Saw Yong (Group Chief Operating Officer) who has at least 30 years of experience in detailed design, engineering, integration, construction and commissioning of PLC-based systems for a range of industrial applications including edible oil refinery plants, automotive industry, water treatment, utilities, electronics, materials handling, O&G as well as food processing. Under his leadership, SET has successfully ventured into the overseas market to secure projects abroad and expand its solutions installation base geographically into more than 30 countries worldwide.
3. Mr. Ting Yi En (Financial Controller) obtained his Association of Chartered Certified Accountants (ACCA) Qualification in 1996. Prior to joining SET in April 2023, his professional career included stints with Tan Peng Sam & Co, KPMG, MTD Construction Sdn Bhd, NCT Venture Corporation Sdn Bhd, Ikhlas Muhibah Sdn Bhd and Classita Holdings Bhd. INVESTMENT MERITS We like SET for:
4. Being the only Ex solar PV player in ASEAN and one of only six globally, distinguished by its comprehensive product offerings that provide a competitive edge over rivals in delivering end-to-end solutions. Its strong market position, proven execution track record, and robust clientele underscore its industry leadership.
5. Capitalising on global net zero commitments in O&G industry. The global energy transition is gaining pace, with major players ramping up investments since 2022. Strong government commitments and rising expenditures by ASEAN upstream players focused on net-zero goals are fuelling the bright prospects of the RE market. Additionally, significant potential remains untapped in brownfield platforms. As a result, its strong earnings visibility is backed by a sizeable outstanding order and tender books 3. Proxy to Wilmar's expansion plan. SET has a strong relationship with Wilmar which is set to drive a major capex surge. Historically, retrofitting capex have followed a 3-to-4-year cycle, with a peak of RM550m in 2020. In recent years, spending in this area has been subdued, creating pent-up demand. We anticipate a sharp recovery in retrofitting investments, with Wilmar expected to increase its spending significantly, potentially tripling to RM300m, to modernize and enhance its manufacturing facilities.
6. The only Ex solar PV player in ASEAN with favourable specifications Laid the foundation in 2007. SET was founded in 2001, initially focused on trading electrical and electronic equipment and serving as a system integrator for process control and power distribution systems. By 2007, SET pivoted into the Ex solar PV market and secured its first major maintenance contract with ExxonMobil Exploration and Production Malaysia Inc., where it provided five years of maintenance, inspection, and troubleshooting services for Ex solar PV systems. The following year, in 2008, SET achieved a key milestone by supplying its first Ex solar PV system to Sabah Shell Petroleum Company Limited in Malaysia, handling the entire process from supply to commissioning.

Progressing into 2009-2020, SET aggressively expanded its product range, positioning itself as a green solution provider for the O&G industry. During this period, SET achieved IECEx, ATEX and UKEX certifications for its solar PV modules with power ratings up to 380W and other Ex products (i.e. Ex navigational aids system with solar panel, Ex diesel generator system, Ex switch rack, Ex LV busbar junction box, Ex battery box, etc) designed for use in potentially explosive environments. These certifications enabled SET to offer larger installed capacities for its Ex solar PV systems, allowing the company to better compete in the market.

ASEAN's only Ex solar PV player with a wider product range. SET stands as the only Ex solar PV provider in ASEAN and one of just six globally (see Exhibit 1), winning over 50% market share in the region's O&G industry available jobs, supported by stringent regulations that create high entry barriers. This strategic position gives SET a strong competitive advantage, allowing it to secure projects through direct bidding. Its competitive edge is further strengthened by superior product design, offering 380W capacity which offers more power in small space than competitors. Additionally, SET provides monitoring & control system (i.e. SCADA, RTU, and PLCs), positioning itself as a one-stop provider. Its expanded capabilities, including diesel generators, wind turbines, and battery solutions, further enhance its value proposition, are making SET a key player in the Ex solar PV market.

SOLAREX Russia Zone 1: 360 Zone 2: 360 * Ex diesel generator system (longer-term backup power) while others are UPS (short-term backup power) Source: Company, Kenanga Research Proven track record. Operating in hazardous environments demands strict regulatory compliance. With its extensive offshore experience, SET has successfully delivered over 150 Ex solar systems to the O&G sector since its inception. It has a strong clientele, including MNCs, public listed companies and reputable private firms such as Shell, ExxonMobil, Chevron, Petronas, PTTEP, PTSC (see Exhibit 2). The ASEAN market, particularly Thailand, presents significant growth opportunities, alongside potential expansion into the Middle East.

Source: Kenanga Research - 8 Jan 2025