Reservoir Link Energy (RL) announced that its 51% owned subsidiary, Founder Energy SB has been awarded a contract from Atlantic Blue SB (wholly-owned by Solarvest Holdings). The work entails engineering, procurement, construction and commissioning (EPCC) of the interconnection facility worth RM16.6m for the development of large-scale solar (LSS) photovoltaic plant of 50MWac at Bukit Selambau Kedah. It is scheduled to complete the work on November 2023. This contract will expand RL’s solar outstanding orderbook to RM66m (from RM50m in December 2022). We make no changes to our earnings forecast as the contract is part of our orderbook replenishment assumption. Although RL will benefit from making further inroads into the RE space, we believe it may also continue to face inflationary pressures to sustain its margin. We maintain our Neutral rating with a TP of RM0.31 based on our sum-of-the-parts valuation.

• Third contract from Atlantic Blue within 12 months. It is worth noting that this is the third contract from Atlantic Blue since March 2022. To recap, the first contact from Atlantic was worth RM14.9m in March 2022 for duration of 10 months. The second contract was awarded in August 2022 worth RM10.2m for duration of 4 months. We opine that the continuation of contract awards shows the vendor’s confidence on its deliverables to complete the works within the terms and on a timely manner.

• Minimal bottom-line contribution. Assuming a net margin of 8%, this contract is expected to contribute RM1.3m to its bottom-line and RM0.7m or less than 0.2sen to its shareholders after considering minority interests of Founder Energy.

• Earnings outlook. While we believe RL will benefit from making further inroads into the RE space, riding on the Government and key energy players’ initiatives, we foresee short-term earnings headwinds for this segment amid inflationary pressures. We maintain our Neutral rating with a TP of RM0.31 based on our sum-of-the-parts valuation.

Source: PublicInvest Research - 18 Jan 2023