KUALA LUMPUR (Aug 2): MIDF Research maintained its 'buy' call on Pekat Group Bhd (KL:PEKAT) with a target price (TP) of RM1.32, following the announcement of the acquisition of a 60% stake in Nilai-based switchgear manufacturer EPE Switchgear (M) Sdn Bhd for RM96 million. 

The deal involved Pekat Teknologi Sdn Bhd, a wholly owned subsidiary of Pekat, purchasing a 60% stake in Apex Power Industry Sdn Bhd, the sole shareholder of EPE Switchgear.

In a note on Friday, MIDF said this marks Pekat's diversification into the power distribution equipment business. 

The research house views the proposed acquisition as one that will synergise well with Pekat’s business as products manufactured by EPE Switchgear, such as switchgears and distribution transformers, are crucial components in solar photovoltaic systems offered by those in the engineering, procurement, construction, and commissioning (EPCC) space, such as Pekat.  

"As the acquisition of Apex Power is expected to be completed by end-2024, we do not expect any contributions to Pekat’s financial year ending Dec 31, 2024 (FY2024), and that it would be insignificant if any. 

"We, however, lift our FY2025 earnings expectations by 39.6% to RM31.4 million, and for FY2026 by 39.3% to RM33.3 million, taking into account contributions from Apex Power," said MIDF.  

Apex Securities, a separate research house, in another note maintained its 'buy' call on Pekat, with a revised TP from RM1.14 to RM1.20, based on sum-of-parts valuation.    

“We opine that EPE Switchgear is well positioned, being one of a handful of vendors and manufacturers appointed by Tenaga Nasional Bhd (KL:TENAGA), having a solid track record with over five decades of market presence," said Apex. 

“We are revising our FY2024/FY2025 earnings projections, taking into account of the acquisition details. We trim our FY2024 core net profit forecast by 7.2% to RM19.4 million, as the acquisition is taking longer than anticipated for completion," said Apex.

Apex furthered indicated that it favours Pekat for its synergistic business model, with the earthing and lighting protection and trading segments consistently delivering a top line of about RM30 million each, an attractive in-house solar financing business, and catering to residential and commercial and industrial solar adoption. 

“EPE Switchgear is one of Malaysia’s largest manufacturers of medium-voltage electrical switchgears, commanding about 30% market share," said Apex.  

However, risks include the acquisition taking longer than expected, failing to fulfil the conditions of the share sale agreement, reversal of solar module prices, and intense market competition, added Apex. 

At the time of writing on Friday, Pekat shares were 3.5 sen or 3.59% lower at 94 sen, giving the company a market value of RM603.11 million.

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Pekat buys 60% stake in local switchgears supplier for RM96m