PGF: Earnings Meet Expectations Amidst Margin Pressure, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM3.05 (+74.2%) |
| Last Traded | RM1.75 |
| Recommendation |
PGF Capital Berhad’s core profit for the first half of FY26 (IHFY26) reached RM14.7 million, aligning with both the investment bank’s full-year forecast and consensus estimates at 42%. Despite meeting expectations, IHFY26 core profit experienced a 9% year-on-year (YoY) decline, primarily attributed to slight margin compression. Revenue growth for IHFY26 was a modest 3.7% YoY, significantly constrained by capacity limitations.
Performance Review
During the period, PGF’s EBITDA and PBT margins contracted by 2 percentage points, settling at 29% and 24% respectively. This contraction was largely driven by increased staff costs and unfavourable foreign exchange movements. Quarter-on-quarter (QoQ), 2QFY26 saw an 11.8% expansion in revenue to RM45.4 million. However, QoQ EBITDA and PBT concurrently contracted by 13.1% and 19.8%, further impacted by adverse forex movements and higher staff bonuses.
Outlook and Revisions
Looking ahead, the establishment of the new BYD plant in Tanjung Malim is expected to significantly boost demand for housing, which stands to benefit PGF’s substantial RM3.0 billion undeveloped Gross Development Value (GDV). However, the company faces ongoing challenges, particularly the unresolved water shortage issue affecting its housing development. This has dampened the likelihood of launching the project in FY26 and achieving an 80% take-up rate necessary to recognize planned land sale gains. Consequently, a partial RM9.7 million land sales gain forecast has been deferred from FY26 to FY27.
Meanwhile, construction of a new plant in Kulim East is progressing, despite a one-month delay. Management remains optimistic about the scheduled commencement in 1QFY27, with plans to expand capacity to 65,000 metric tons (from 30,000 mt) in FY27. However, the utilisation rate for the expanded capacity is projected to decrease to 62% from 92% in FY26.
Due to the revised timeline for land sales gain recognition, TA Securities has adjusted its FY26 earnings projections downwards by 23%, while concurrently increasing its FY27 earnings projections by 13%.
Analyst Recommendation
TA Securities maintains a “BUY” recommendation for the company. The target price has been raised from RM2.99 to RM3.05 per share, representing a 74.2% upside from the last traded price of RM1.75. This revised valuation is based on rolling forward the valuation base year to CY27 using a sum-of-parts (SOP) methodology.
