PETALING JAYA: Analysts seem rather favourable on solar photovoltaic (PV) and earthing and lightning protection (ELP) specialist Pekat Group Bhd’s prospects, given its established track record and potential growth.
The company is bound for a listing on the ACE Market on June 23 at an initial public offering (IPO) price of 32 sen.
According to Pekat’s prospectus, as at May 3, the group had a RM198.9mil order book, of which RM44mil has been billed and the balance RM154.9mil unbilled. Of the group’s unbilled order book, RM117mil would be recognised in 2021 while the balance will be recognised over the next few years.
In a report yesterday, RHB Research noted that the company’s valuation was at a significant discount to its peers. The research house ascribed a fair value of 56 sen to Pekat, indicating an upside of 76%, based on a target 20 times the forecast financial year 2022 (FY22) price-earnings-ratio (P/E).
“Our target is fair, as it is a discount to our ascribed 25 times target for Solarvest Holdings Bhd (which has a target price of RM1.50), given that Pekat is the smaller of the two solar engineering, procurement, construction and 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) and further solar power purchase agreement investment via associate company MFP Solar, ” it said.
Meanwhile, TA Securities pointed out that at an IPO price of 32 sen, Pekat is priced at a trailing P/E of 15.2 times FY20 core earnings per share (EPS). The brokerage has valued the company at 17 times calendar year 2022 EPS, arriving at a fair value of 40 sen per share.
Pekat intends to use the IPO proceeds of RM44.4mil to expand its businesses by securing more contracts, concurrently carrying out projects, and providing more maintenance services. The company should continue to see contract flows given its 11-year track record in the industry.
The solar EPCC business has benefitted greatly from the various government programmes in place, including the Net Energy Metering (NEM), to accelerate solar energy adoption. Solar PV demand will continue to remain high as the world continues to adopt renewable energy.
“While we do expect some margins compression from raw material price increases and stiff competition, we still project FY21 earnings to increase 19.5% year-on-year on its outstanding solar EPCC and ELP orderbook of RM154.9mil as of May 3, with RM117.2mil of this expected to be delivered by end 2021. Moving into FY22-FY23, we expect earnings growth of 10.2%-10.1%, ” said RHB.