• Solarvest proposed to acquire a 30% stake in SMSB for RM36m, allowing it to expand its presence in Asian markets such as Singapore, Taiwan, and China
• This acquisition is expected to lift Solarvest FY26 earnings by 6.1%
• Maintain BUY rating with unchanged SOP-derived target price of RM2.00

Proposed 30% equity stake acquisition in SIW Manufacturing…

Solarvest proposed to acquire 30% equity stake in SIW Manufacturing Sdn Bhd (SMSB) for a total cash consideration of RM36m. SMSB is principally involved in manufacturing waste gas abatement machines and gas system-related modules and components for the semiconductor sector. This acquisition enables Solarvest to leverage SMSB's existing customer base to expand its presence in Asian markets such as Singapore, Taiwan, and China as part of its broader plan to diversify its revenue stream. The proposed acquisition will not require shareholders’ approval but is subject to approval from the relevant government authorities. This acquisition is expected to be done in 3 tranches, each 10%, and the target is to be completed by July 25.

…for an attractive 7.5x PE multiple

The proposed acquisition has a cumulative profit guarantee of RM30m over 2 years, split into RM14m for 2024 and RM16m for 2025. We are positive on the acquisition being earnings accretive and at an undemanding valuation of 7.5x PE vs. Solarvest’s current valuation of 22x. The proposed acquisition will be funded through internally generated funds. With a gross cash balance of RM130m as of 2QFY25, Solarvest has a sufficient war chest to fund the transaction entirely in cash. This would increase net gearing to 0.29x (from the current 0.17x), which remains manageable. Taking into account the expected profit guarantee, we expect this acquisition to lift Solarvest’s FY26E earnings by 6.1%

Maintain BUY with TP of RM2.00

We will make no changes to our earnings forecast at the current juncture, pending the completion of the acquisition. We reiterate our BUY rating with an unchanged SOP-derived target price of RM2.00, which implies a forward 26x PE multiple based on fully diluted FY26E EPS of 7.6sen. We continue to like Solarvest as a dominant player in the solar renewable energy space and are set to benefit from the nation’s RE agenda. Key downside risks include government RE policy changes, project execution delays, intense market competition, and volatility in solar module prices.

Source: Philip Capital Research - 4 Dec 2024