Solar District Cooling Group Berhad (SDCG), has filed for an IPO on the ACE Market with a listing price of RM0.38, but based on its business model and past earnings report, broking house Malacca Securities belivies a fair value of RM0.53 is deserved which is an upside of 39.5%.
The house derived its valuation by pegging a forward P/E of 27x to the FY25f EPS of 1.95 sen. We believe the forward P/E of 27x is fair, given the average P/E of the closest peers stood at 27.2x.
It added the growth of BMS products which the company is involved in is closely tied to the expansion of Malaysia's construction sector, which represents over 3% of the country's GDP. In 2023, the construction industry's real GDP grew by 6.1% YoY. Looking ahead, the Ministry of Finance (MoF) forecasts a 6.8% growth in the sector for 2024, creating more opportunities for BMS players as demand for related services increases.
As a certified ESCO, Solar District Cooling Group Berhad (SDCG), Malacca Securities said the company is well-positioned to benefit from this growth. The company offers financing facilities or capital expenditure (CapEx) for solar thermal and energy services systems, with CapEx repaid by clients through fixed cost charges.
Notably, SDC has sourced its thermal solar and energy-saving services primarily to hospitals, we anticipate that future growth will be concentrated in this sector, given that the group has served only 7 out of 160 public hospitals. Also, the group has recently tapped into maintenance for chiller segment, which the house believes could potentially boost revenue in tandem with the growth in data centres.
As of the latest practicable date (LPD), SDCG has more than 10 ongoing projects in BMS and solar thermal systems, with contract values totalling RM47.1m. The unbilled order book stands at RM16.5m for FY24 and RM6.1m for FY25, providing earnings visibility in the near term.
The group has consistently improved its profit margins, with PAT margins increasing from 13.49% in FY20 to 23.83% in FY23, and currently standing at 20.24% as of FPE24. This reflects SDCG's strong pricing power and effective cost management. Looking ahead, we expect margins to remain stable in line with the group's positive outlook.
Moving forward, Malacca projects SDCG's revenue to grow at 5.3-16.9%, reaching RM28.0m-RM35.5m for FY24-26f, while its core net profit is expected to increase by 8.4-19.2% to RM6.9m-RM8.9m, supported by the overall growth in capital
expenditure in pursuant of proceeds.
