Investors Eye Solar District Cooling Group's IPO for Strong Growth Potential

Solar District Cooling Group Berhad (SDCG), a provider of building management systems (BMS), solar thermal systems, and energy-saving solutions, is attracting attention with its upcoming IPO.

With a fair value of RM0.60 given by Eco Asia Capital, investors could see a potential upside of 58% from the IPO price of RM0.38. The IPO seeks to raise approximately RM45.10 million, primarily allocated for capital expenditure (62.36%) and working capital (28.10%).

Key Growth Drivers

Strong Financial Fundamentals. As of FYE2023, SDCG's current ratio stands at 4.74x, reflecting robust liquidity. With a low gearing ratio of 0.05x, the company is well-positioned to fund its expansion. Revenue is projected to rise from RM26.62 million in 2023 to RM47.12 million by 2026, driven by increased demand for energy-efficient solutions.

Government Support. SDCG benefits from Malaysia's green energy initiatives, including the National Energy Transition Roadmap (NETR) and tax incentives like the Green Investment Tax Allowance (GITA). These policies are expected to fuel demand for the company's energy efficiency services.

Renewal of Hospital Contracts. SDCG's major clients hold long-term contracts for hospital maintenance services with the Ministry of Health (MOH), which annually pays RM1.3 billion for these services. The renewal of these contracts in 2025 could further bolster revenue.

Data Centre Boom. With growing investments from tech giants like Google, Microsoft, and Nvidia in Malaysia's data centres, SDCG is well-positioned to benefit from its expertise in BMS and chiller maintenance, both essential for these high-energy-consuming facilities.

Financial Highlights

Revenue: RM18.65 million (2022), RM31.41 million (2024F), RM47.12 million (2026F)

Gross Profit: RM10.68 million (2022), RM16.94 million (2024F), RM25.40 million (2026F)

Core EPS: 1.22 sen (2022), 2.30 sen (2025F), 2.76 sen (2026F)

Strong profit margins: Ranging from 13.49% to 27.80% from FY2020 to FY2023.

Future Outlook. SDCG plans to expand its headquarters and invest in new tools and IoT software, further enhancing productivity. The company also aims to venture into the solar PV system business, capitalising on its expertise in solar energy.

With a healthy financial position, government support, and growing demand for energy-efficient solutions, SDCG presents an attractive investment opportunity for investors seeking long-term growth.

Recommendation: BUY. With a 58% expected return, SDCG is a promising investment for those looking to benefit from Malaysia's push towards energy efficiency and sustainability.