Pekat Group Berhad's future looked bright as it acquired a 60% stake in Nilai-based EPE Switchgear (M) Sdn Bhd for RM96.0 million, diversifying into the power distribution equipment business. This acquisition allowed Pekat to expand its market reach and enhance its product offerings, positioning it for significant growth, according to a report by MIDF Amanah Investment Bank (MIDF).
MIDF maintained its BUY recommendation on Pekat Group Berhad, raising the target price to RM1.32 from the previous RM0.88. The revised target price reflected the strategic value of the acquisition and the expected positive impact on Pekat's earnings.
The acquisition involved Pekat Teknologi Sdn Bhd, a wholly-owned subsidiary, purchasing a 60% stake in Apex Power Industry Sdn Bhd, the sole shareholder of EPE Switchgear. The deal was structured with a 10% deposit and two tranches for the remaining payment, funded through internally generated funds and bank borrowings. Pekat's net gearing was estimated to be at 29.3% after the acquisition.
A profit guarantee of RM48 million over three years was provided by Apex Power, ensuring a minimum annual profit of RM16 million from FY24 to FY26. With an outstanding order book of RM204.3 million, Pekat was confident in surpassing the profit guarantee. The purchase price of RM96 million valued EPE Switchgear at a PE multiple of 10.8x FY23 PAT, deemed reasonable by an independent valuer.
The acquisition would synergise with Pekat's business, integrating crucial components like switchgear and distribution transformers into its solar photovoltaic (PV) systems. This move allowed Pekat to tap into the power distribution equipment market and expand into new foreign markets, enhancing its competitive edge.
Pekat was set to release its 2QFY24 results on 21st August, with expected earnings in line with FY24E projections. The company's outstanding order book stood at approximately RM185 million, anticipated to grow with upcoming Corporate Green Power Programme (CGPP) projects. Pekat also secured its own CGPP quota of 29.99MWac, with the plant to be built in Tronoh, Perak.
MIDF revised Pekat's earnings estimates, expecting a 39.6% and 39.3% increase for FY25F and FY26F, respectively, due to contributions from Apex Power. The target price upgrade to RM1.32 was based on Pekat's FY25F EPS of 4.7 sen and a forward PE of 28x, reflecting the company's three-year historical mean.
Pekat Group Berhad demonstrated consistent performance and strong prospects with favourable policies like the CGPP, National Energy Transition Roadmap (NETR), and LSS5. The acquisition of Apex Power provided control over EPE Switchgear, enabling Pekat to diversify and strengthen its market position.
