Positive views on Pekat’s acquisition of EPE Switchgear

PETALING JAYA: Pekat Group Bhd’s plan to acquire a stake in EPE Switchgear (M) Sdn Bhd, a switchgear manufacturer based in Nilai, will complement its current businesses.

Products manufactured by EPE, such as switchgear and distribution transformers, are crucial components in the solar photovoltaic (PV) systems offered by companies in the engineering, procurement, construction and commissioning (EPCC) sector such as Pekat.

The acquisition will position Pekat favourably to ride the expected improvement in demand over the long term.

This will be driven by the growing solar industry that is backed by conducive government policies and the substantial capital expenditure for projects involving the country’s energy transition, especially for the upgrading of grid infrastructure.

Pekat is not currently involved in the provision of solar PV solutions for data centres, but that is the direction its management is looking forward to.

MIDF Research said Pekat is no stranger to data centre-related jobs, having worked on earthing and lightning protection (ELP) solutions for data centres by Bridge and Keppel.

It is currently constructing the ELP systems for facilities by Yondr and AirTrunk and the company’s management is positive on its prospects, backed by the mushrooming of data centres in the country, especially in Johor.

Major data centre players like Nvidia, AirTrunk, GDS International, YTL Power as well as Princeton Digital Group have set up operations in Johor.

Tech giant Microsoft has also reportedly purchased land in Kulai, Johor, to open a data centre.

Its future order book replenishment prospects will come from Large Scale Solar initiative in Malaysia and EPCC jobs, said MIDF Research.

The research house said Pekat is expected to release its results for the first quarter of its financial year 2024 (1Q24) on May 28.

MIDF Research projects the company’s FY24 revenue to be at about RM234.4mil with a core net profit of RM17.4mil, which will mainly be driven by commercial and industrial and residential rooftop solar jobs.

The research house revised Pekat’s FY25 earnings estimates slightly higher by 6% to RM22.5mil on the back of management’s more optimistic outlook on rooftop solar.

The research house also upgraded its target price for Pekat to 88 sen a share from 68 sen by rolling forward its valuation base year to FY25, pegging its earnings per share of 3.5 sen to a forward price-earnings ratio of 25 times, a slight discount to its larger peers.

Pekat’s outstanding order book stands at about RM180mil, comprising mainly rooftop-solar projects.

It is also aiming to secure about RM200mil worth of EPCC projects related to the Corporate Green Power Programme (CGPP), with MIDF Research expecting announcements for the projects to be made soon.

CGPP is an initiative by the government to provide opportunity for business entities to participate in the promotion and use of renewable energy in their business operation.

The programme supports the growing number of electricity consumers that aspire to achieve environmental, social and governance (ESG) targets.

Pekat had also secured its own CGPP quota of 29.99MW last year. Its plant will be built in Tronoh, Perak.