Reservoir Link Energy (RL) reported core profit after tax and minority interest (PATAMI) of RM1.0m in 1QFY24, lower than RM2.7m (-64.5% QoQ) reported in 6QFY23 due to higher minority interest arising from increasing contributions from its renewable energy (RE) segment. On a YoY basis, core PATAMI improved from RM0.7m (+40.1%) in the similar calendar period, last year (3QFY23), in tandem with higher revenue (+63.4% YoY). Overall, the result lagged our and consensus estimates at 10% of full year FY24 numbers. As guided earlier, Its RE segment will continue to grow, with segmental revenue achieving an all-time high at RM48.9m. We remain cautiously optimistic on its transformation strategy, riding on the recent award from the Corporate Green Power Purchase (CGGP) and other initiatives pursuant to the National Energy Transition Roadmap (NETR). We maintain our forecasts as we expect more contract awards for the RE segment moving forward. We also maintain our Trading Buy call though we trim the TP to RM0.38 (from RM0.40) to account for new shares post-additional placement during the quarter. Only 9% of the 30% proposed has been issued to date.

• RE segment continues to grow. The Group recorded an all-time high RE segmental revenue of RM48.9m (+ 27.1% YoY, 50.3% QoQ), with further growth likely to come on the back of CGPP and other NETR initiatives introduced by government. The orderbook and tenderbook value remain strong at about RM39.0m and RM274.9m respectively. We expect the Group, viaFounder Energy to secure more works from the remaining CGGP power producers as subcontractors to the EPCC players. Assuming RM4m/MW, we estimate a total of RM2.3bn in contract value will be shared among EPCC players. As the Group is shifting from the oil and gas to RE segment, we should expect to see notable reduction in net margins (at PATAMI level) due to high minority interest in its RE solar construction outfit, Founder Energy.

• SAG Renewables (SAGR) acquisition. The Group recently announced that itis acquiring SAGR for RM10.5m, which consists of 13 solar photovoltaic (PV)installations with a combined capacity of 2.5MWp or approximately 2.0MWac.Although the acquisition price is at a slight premium, we believe it is fair given no construction risk with the contracts’ Supply Agreements for Renewable Energy (SARE) for the next 21 years. This will provide recurring income to the Group, consistent with its aspiration to be asset or concession owners in the renewable energy space to reduce its reliance on construction-based income. However, the contribution towards its bottom line from the acquisition remains insignificant (less than RM200k/annum).

Source: PublicInvest Research - 17 Nov 2023