PA Resources Bhd is poised for a growth at 20.5% 3-year earnings CAGR1, supported by its plan to double manufacturing capacity and rising demand in the solar industry, in addition to the extension of multi-year contract from First Solar, a leading producer of photovoltaic (PV) modules from the US, according to RHB Investment Bank Bhd's Small Cap Asean Research (RHB Research).
Armed with 26 years of experience in the aluminium industry, PA Resources has operations covering the upstream, midstream and downstream levels including smelting cast billets, extrusion of aluminium profile, and anodizing and fabrication.
According to Wood Mackenzie, global solar photovoltaic (PV) installation capacity is projected to more than triple over the next decade owing to decarbonisation efforts from global governments and private corporations, driving up the demand for aluminium parts.
PA Resources' largest client, First Solar, anticipates US$4.6 billion in revenue for its financial year ended Dec 31, 2024, a projected increase of 39% supported by rising global demand for solar energy and improved average selling prices (ASPs).
First Solar's plan to increase production capacity to 25 gigawatt2 (GW) by 2026, up from 16.6 GW in 2023, is expected to contribute to higher order volume for PA Resources.
To put into perspective, one GW of power can be sourced from 1.9 million PV panels3, 294 utility-scale wind turbines4, 103 offshore wind turbines5 and 1.3 million horses6, according to the Washington DC-based Office of Energy Efficiency & Renewable Energy.
PA Resources secured its fourth contract extension with First Solar in Jan 2024 worth RM1.1 billion for 18 months (or RM183 million/quarter) for the supply of aluminium frame parts. The previous contract was worth RM550 million for 12 months (or RM138 million/quarter).
To accommodate the new contract, PARB expanded its production capacity from 2,800 tonnes per month to 3,200 tonnes per month in 2QFY2023/247, or late 2023.
Operating at full capacity, the recent contract extension should keep the company busy throughout FY2024/25 (till June 30, 2025) with good earning visibility.
Additionally, PA Resources has acquired an 18-acre parcel of land for the construction of a new plant that will double its capacity. The expansion will take place in three phases – with the aim to increase its capacity from 3,200 tonnes per month to 7,000 tonnes in FY2025/268(till June 30, 2026).
This new plant will serve existing clients, while also enabling PA Resources to develop new products for new customers across various industries, thereby diversifying its revenue base.
As reported, PA Resources stands to benefit from the US tariff hike ranging from 7.5% to 25% on East Asian aluminium imports aimed at curbing global overcapacity and trade circumvention.
Nevertheless, the local aluminium supplier faces downside risk arising from drastic fluctuation of foreign exchange rates particularly the US dollar to Malaysian ringgit forex, standing at RM4.373 per dollar as at 12:00pm Oct 29 sourced from Bank Negara Malaysia.
As at 12:35pm Oct 29, PA Resources' share stood at RM0.30, down half of a sen from last Friday's settlement price of RM0.305.
RHB Research noted that PA Resources fair value is set at RM0.49, more than 60% above it's current price level of RM0.30, a 19 sen gap.
Analysts at RHB Research believe that the current valuation (8.1x FY2024/259 Forecast, ROE:16%) is at a compelling level to buy into the company's solid track record in delivering earnings growth and robust fundamentals.
- CAGR: Compound Annual Growth Rate ︎
- There are one billion watts in one GW, one million watts in one megawatt (MW) and one thousand watts on one kilowatt (kW). ︎
- Based on a representative bifacial module of 530 watts. ︎
- Based on the average utility-scale land-based wind turbine size of 3.4 MW installed in the United States in 2023. ︎
- Based on the average offshore wind turbine size of 9.7 MW installed globally in 2023. ︎
- Based on horsepower to watts conversion: 746 watts = 1 horsepower. ︎
- 2QFY2023/24: Second quarter of financial year ended June 30, 2024 (October 2023, November 2023 and December 2023) ︎
- FY2025/26: Financial year from July 1, 2025 to June 30, 2026 ︎
- FY2024/25: Financial year from July 1, 2024 to June 30, 2025 ︎
