Investment Highlights

• Stock idea. Solarvest Holdings (Solarvest) is the first pureplay solar energy provider listed on Bursa Malaysia’s Mainboard with a syariah-compliant status. The group’s main business operations are providing engineering, procurement, construction and commissioning (EPCC) works for solar photovoltaic projects to external customers which lead to opportunities to offer recurring operation and maintenance services.

• Solarvest has broadened its operations into asset ownership by undertaking 50MWp large-scale solar photovoltaic (LSSPV) projects in addition to its existing 1MWp plant in Kedah. It is also seeking to diversify into green technologyrelated services and the battery storage business.

• Listed on 26 Nov 2019 at an IPO price of RM0.35/share on the ACE Market, Solarvest transferred to the Main Board on 13 Oct 2021 under the category of “Industrial Products and Services”. This radically re-rates the company’s investment visibility as many institutional investors do not have a mandate to invest in ACE Market companies.

• The company is in the midst of transforming its business model to expand beyond EPCC work, which accounts for 87% of FY21 EBIT, by aiming to triple the share of its recurring income to 30% of EBIT via asset ownership and operation/maintenance services.

• Even though the group’s 1HFY22 results were impacted by project delays arising from Covid-19 movement restrictions, we expect a rebound in 2HFY22 earnings with the relaxation in those restrictions.

• The group’s medium and longer term prospects are underpinned by its unbilled order book of RM629mil (2.9x FY21 EPCC revenue). This is set to escalate on tenders worth RM1bil against the backdrop of Malaysia’s ambitious renewable energy (RE) target of 31% by 2025 and 40% in 2035 from 18% currently together with strong regional growth prospects.

• Key risks to the group stem from escalating solar panel costs from supply chain disruptions, labour constraints from Covid-19 border restrictions, technology changes and rising competition from multiple EPCC operators.

• While Cypark Resources, currently trading at FY22F PE of only 6x, is invested in renewable energy, we do not view the company, which does not offer EPCC services to external parties as directly comparable. Also, Cypark has an uncomfortably high net debt/EBITDA of 7.6x and negative FY18/FY23F EPS CAGR of -1%.

• The share price is currently 40% below the stock’s peak of RM2.07 on 15 Feb last year.

Source: AmInvest Research - 5 Jan 2022