• Reservoir Link Energy Berhad (RL) announced that it has finalized the shareholders’ agreement to form a JV company with Sunseap EDPR to be named RL Sunseap Energy.

• Core activity of the JV company is to develop, own and operate solar PPAs in Malaysia with the EPCC scope of works to be done by RL.

• We believe this partnership is positive to RL’s earnings sustainability in the long run. However, no changes is made to our forecast pending further clarity with the management.

• Maintain RL as a BUY with unchanged TP of RM0.52 which implies 13x FY23F P/E. We think its value proposition in solar venture is getting more attractive leveraging on solid business acumen of its partner.

Venturing into solar PPA business

Reservoir Link (RL) announced that it has entered into a shareholders’ agreement with Sunseap Energy (Malaysia) Sdn Bhd, a subsidiary of Sunseap Group (Sunseap) to form a JV company named as RL Sunseap Energy Sdn Bhd. RL will hold 51% stake in in the JV company while the latter will hold the remaining 49%. This JV will carry out the business of developing, building, owning and operating both rooftop and ground mounted solar PPAs in Malaysia.

Roped in a very credible partner in solar

We are positive with this partnership as it will strengthen RL’s position in its solar business, leveraging on the technical expertise of its partner. Note that Sunseap is the fourth largest solar power operator in Southeast Asia with a pipeline of close to 10 GWac of solar energy projects across Asia. It is a subsidiary of EDP Renewables which is one the world’s largest renewable energy producer, following the latter’s acquisition of 91% stake in Sunseap. Through the JV company, we believe RL will not only benefit from the recurring income of the PPA revenues but also from construction revenue as the EPCC scope for the PPA project is likely to be awarded to it.

No change to earnings forecast

We maintain our earnings forecast at this juncture pending more details from the management. We understand that the JV company already secured 2 contracts to develop solar rooftops project from Osram Opto Semiconductors and PE Land (Penang) with a combined capacity of c.10MWac. Nonetheless, a formal solar PPA agreement for these projects have yet to be finalised.

Maintain ‘BUY’ call with unchanged TP of RM0.52

We maintain our BUY recommendation on RL with SOP-derived TP of RM0.52. Our TP implies 13x FY23F P/E. Our BUY recommendation is premised on (i) its favourable prospects from well services, and (ii) growth potential in both the O&G and RE space.

Source: BIMB Securities Research - 26 Jul 2022