• Yesterday EC announced that a total of 563MW solar projects have been approved under CGPP program.

• We are optimistic on RL as its consortium emerged as one of the successful applicants with 29.99MW capacity. Besides that, it will also benefit from the projects roll-out leveraging on its subsidiary Founder Energy which holds a prominent position as one of the largest local subcontractor companies for solar developers.

• Maintain RL as a BUY with a higher fully diluted SOP-derived TP of RM0.38 which implies 13x FY24F P/E. We believe its RE solar venture will provide both greater visibility to earnings and re rating catalyst to the stock price.

RE Purchase is Now Opened to Corporates

Energy Commission (EC) has announced the list of successful Solar Power Producer of the Corporate Green Power Programme (CGPP) which consisted of 22 companies/consortia that have been selected out of the 71 applications received (Table 1). The successful applicants represent 563MWac of export capacity out of 800MW quota that is opened. Recall that the application has commenced from 9th May 2023 and it will end by 31st Dec 2023 or until the quota is fully subscribed. The salient features of the program, among others are: (i) all solar projects are expected to begin commercial operation in 2025, and (ii) the eligible Corporate Consumer is able to purchase renewable energy (RE) “directly” from the solar power producer through a virtual power purchase agreement (PPA).

Boosting its PPA assets

In the announcement, Reservoir Link (RL) was also listed as one of the successful CGPP applicant to build and operate a solar plant with capacity of 29.99 MWac under a consortium with Sumitomo Corporation and Maqo Engineering SB. We estimate this will boost its PPA assets to 47.6MW. We believe it will not only benefit from the recurring income of the PPA revenues but also from construction revenue as the EPCC scope is likely to be awarded to it.

A Key Catalyst to RL

Moreover, we are positive with this announcement as it will allow RL to replenish RE orderbook given that most LSS4 projects are expected to reach commercial operation date by Dec 2023. As such, we raised our FY23F/24F/25F earnings forecast by 25%/6%/10% as we expect the company to benefit from the roll-out of these projects. To recap, its solar orderbook stood at RM60mn as at end 5QFY23 which is less than 1x 15MFY23 RE revenue.

Maintain ‘BUY’ call with higher TP of RM0.38

We maintain our BUY recommendation on RL with a higher fully diluted SOP-derived TP of RM0.38 (from RM0.36). Our TP implies 13x FY24F P/E.

Source: BIMB Securities Research - 8 Aug 2023