Pekat (PEKAT MK): Earnings Soar on Strong Margins and Power Distribution Growth, Target Price Raised to RM1.90
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM1.90 (+15.2%) |
| Last Traded | RM1.65 |
| Recommendation |
Pekat (PEKAT MK) has reported robust financial performance for the first six months of 2025 (6M25), with core earnings surging 179% year-on-year to RM23 million. This performance significantly exceeded expectations, representing 60% of PhillipCapital’s and 49% of consensus full-year forecasts, primarily driven by better-than-expected margins.
Performance Review
The company’s 6M25 revenue climbed 143% year-on-year to RM277 million, bolstered by strong contributions from the solar PV segment (+123%), earth and light protection (ELP) segment (+51%), and its newly acquired power distribution business. A notable increase in the EBITDA margin, up 3.3 percentage points to 15.3%, was attributed to a favourable revenue mix stemming from higher-margin ELP and power distribution segments, alongside enhanced operating leverage.
Despite a sequential 16% quarter-on-quarter decline in 2Q25 revenue, mainly due to weaker solar (-33%) and ELP (-8%) segments, the company successfully expanded its EBITDA margin by 2.8 percentage points to 16.8%. This margin resilience was largely a result of increased recognition from the higher-margin power distribution segment, which partly mitigated the revenue dip.
Future Outlook and Recommendation
Looking ahead, Pekat anticipates a sequential improvement in earnings, with its stronger power distribution segment expected to cushion the impact of a softer solar segment in the second half of 2025, as the Corporate Green Power Programme (CGPP) project approaches its tail-end. The company has secured higher order book replenishment of RM280 million (up from RM240 million) for its power distribution segment following a recent contract win from Tenaga Nasional Berhad (TNB).
In light of the stronger order book replenishment and improved margins, PhillipCapital has raised its 2025-2027E earnings per share (EPS) forecasts by 4-7%. This adjustment more than offsets the EPS dilution from an upcoming private placement. Consequently, the investment bank has upgraded Pekat to a BUY rating from HOLD, setting a higher 12-month target price of RM1.90, an increase from the previous RM1.57.
Key downside risks include potential government renewable energy policy changes, project execution delays, intense market competition, and volatility in solar PV panel prices.
