Reservoir Link Energy (RL) reported core PATAMI (net profit) of RM2.7m in 6QFY23, sequentially higher from RM0.7m in 5QFY23. The performance is attributed to higher margin from the renewable energy (RE) segment by 4.47 ppts, believed to be due to lower material cost for its solar segment. On a YoY basis, core PATAMI returned to the black from losses of RM1.1m in the similar calendar period, last year (2QFY23). Overall, the 18MFY23 core net loss of RM880,000 missed our estimate of an RM2.2m net profit, with no consensus estimates available due to change in financial year end. Moving forward, we believe its RE segment will continue to grow, riding on the recent award from the Corporate Green Power Purchase (CGGP). We upgrade our call to Trading Buy however, as we expect the Group to secure more construction works for its RE segment in 2H 2023, going forward. We increase our TP to RM0.40 (from RM0.39) after we revise FY24 earnings higher by 21.8%, while also accounting for its new share base post placement. Our TP is nonetheless subject to significant dilution upon full completion of the private placement, whereby only 4% of the 30% proposed has been issued to-date.

• RE segment to drive growth. Revenue has tripled on a YoY basis, contributing about 60%-80% of overall revenue in each quarter. We reckon the 6QFY23 revenue mix and RE segment numbers will form baseline assumptions on any expectations going forward as the Group aims to maintain profitability at the PATAMI level. RE segment revenue will continue to grow as the management has shifted its focus into the RE space since the acquisition its 51%-owned subsidiary, Founder Energy. To-date, about 150MW of solar PV construction is still in progress within its RM43m orderbook. This orderbook is expected to increase by another RM130m from its 30%-owned associate in a CGPP consortium. Founder Energy is also expected to secure more works from the rest of the CGGP power producers as subcontractor to the EPCC players. Assuming RM4m/MW, we estimate a total of RM2.3bn of contract value will be shared among EPCC players, which will see Founder Energy getting a slice of.

• Update on concession portfolio. In pursuit of stable recurring income, the Group also currently has a 65MW DC solar portfolio, including from 45MW from CGPP and which may increase further by another 30MW in progress. On its wastewater treatment plant with Unilever in Indonesia, construction progress is currently at 60% and on track to be completed by end 2024. Meanwhile, 12MW mini hydro power purchase agreement (PPA) is expected to be finalized in 4Q 2023. So far, the Group has secured project financing to finance its wastewater treatment plant, though the progress on its private placement is slower than expected, which only 4% out of 30% proposed placement issued.

Source: PublicInvest Research - 28 Aug 2023