KUALA LUMPUR: RHB Research has ascribed a fair value of 56 sen for Pekat Group Bhd, whose core business are solar photovoltaic (PV) and earthing and lightning protection (ELP), which is 76% above the offer price of 32 sen.
In its research note on Wednesday, it said the valuation was at significant discount to its peer Solarvest. It added the FV of 56 sen was based on a target 20 times FY22 forecast price-to-earnings (P/E).
“Our target is fair, as it is a discount to our ascribed 25 times target for Solarvest (Neutral, TP: RM1.50), given that Pekat is the smaller of the two solar engineering, procurement, construction & commissioning (EPCC) players.
“It could trade at a higher valuation, given the robust solar contract flows and sustained market interest in solar EPCC-related counters. There is also further upside to our forecast that can come from higher-than-expected EPCC wins from large scale solar 4 (LSS4) EPCC projects.
“Associate MFP Solar will also see full-year contribution from both the LSS4 and further solar power purchase agreements (PPAs), ” it said.
However, RHB Research said Pekat Group’s key risks include a change in government renewable energy (RE) policies, downturn of the construction industry, competition risks, and raw material price fluctuations.
At the 32 sen a share IPO price, it will raise RM44.4mil from the public issue of 138.7mil shares, mainly for the construction of a new head office and working capital.
This is in view of Pekat Group’s expected business growth. Future earnings will be supported by its 1.2 times orderbook cover ratio, mainly comprising solar EPCC contracts, where demand is driven by favourable government policies and the inexorable global trend towards renewable energy (RE).
“IPO price implies 11 times FY22F P/E, that is a significant discount to its peer, ” it said.
RHB Research said Pekat Group is the main beneficiary of solar PV systems for the commercial, industrial and residential segments.
The solar EPCC business has benefitted greatly from the various government programmes in place, for example, Net Energy Metering (NEM), to accelerate solar energy adoption. Accordingly, solar EPCC revenue has grown at a respectable 3-year (FY17-20) CAGR of 69%.
The research house said moving forward, solar PV demand remains high, as the world continues to adopt RE.
“Pekat will continue to see contract flows, in our view, given its 11-year track record in the industry, ” it said.