Solar District Cooling Group Berhad (SDCG)–A Compelling IPO with Strong Growth Prospects

Overview. Solar District Cooling Group Berhad (SDCG), primarily involved in the provision and maintenance of Building Management Systems (BMS), solar thermal systems, and energy-saving services, is making its debut on the ACE Market of Bursa Malaysia. The company’s focus on energy efficiency and sustainability, aligned with Malaysia’s Net Zero 2050 Initiatives, positions it as a key player in the country’s growing green energy sector.

Valuation and Target Price. Malacca Securities has ascribed a fair value of RM0.53 per share for SDCG, representing a 39.5% upside from its IPO price of RM0.38. This valuation is based on a forward P/E of 27x for FY25f EPS of 1.95 sen. The valuation is considered fair, given that the average P/E of SDCG’s closest peers stands at 27.2x.

Building Management Systems (BMS). This segment, which accounted for 63.8% of FY23 revenue, is poised for growth as Malaysia’s construction sector expands. With the sector’s real GDP growth forecasted at 6.8% for 2024, demand for BMS products is expected to rise, presenting significant opportunities for SDCG.

Malaysia’s Net Zero 2050 Initiatives. The National Energy Transition Roadmap (NETR), part of Malaysia’s MADANI economic reforms, aims to leverage RM6 billion in investments to support Energy Service Companies (ESCOs) like SDCG. As a certified ESCO, SDCG is well-positioned to benefit from these government initiatives, further driving its growth.

Resilient Contracts and Orderbook. As of the latest practicable date, SDCG has more than 10 ongoing projects in BMS and solar thermal systems, with a contract value totaling RM47.1 million. The unbilled order book stands at RM16.5 million for FY24 and RM6.1 million for FY25, providing strong earnings visibility in the near term.

Financial Performance. In FY23, SDCG’s revenue surged to RM26.6 million, up from RM14.7 million in FY20, achieving a Compound Annual Growth Rate (CAGR) of 21.9%. Moving forward, revenue is projected to grow at 5.3–16.9%, reaching RM28.0–35.5 million for FY24–26f. Core net profit is expected to rise by 8.4–19.2%, reaching RM6.9–8.9 million, driven by ongoing order book fulfilment and expansion within the BMS and solar thermal segments.

Conclusion. SDCG’s IPO offers a compelling investment opportunity, backed by robust growth prospects in the energy management and sustainability sectors. With a fair value target of RM0.53 per share, investors could potentially see a 39.5% upside from the IPO price. The company’s alignment with Malaysia’s green energy initiatives and its strong financial performance further solidify its position as a worthwhile investment in the burgeoning energy efficiency market.