• Reservoir Link Energy (RL) recently unveiled the details of IPO listing for its 51% owned subsidiary, Founder Group Limited (FGL), formerly known as Founder Energy Sdn Bhd) on Nasdaq.

• The company aims to raise at least USD4.6mn from the IPO, thereby valuing FGL at USD68mn. This is notably more than double our current valuation of RM140mn.

• While the listing will dilute its stake in FGL, the company will remain in control of the latter as it will act in concert with the second largest shareholder of FGL with a combined equity stake of at least 52.5% of the enlarged FGL shares.

• Overall, we commend this listing as an avenue to raise funds for its RE business expansion to foreign market due to (i) better valuation, and (ii) enhance its brand recognition.

• Maintain RL as a BUY with an unchanged fully diluted SOPderived TP of RM0.38 which implies 13x FY24F P/E. At prevailing valuation, we still think that the stock is a cheaper proxy for the growing solar and RE projects.

Seeks IPO Listing of Solar and RE Business on Nasdaq

Reservoir Link Energy (RL) recently announced the detailed plan of the planned IPO listing of its 51%-owned subsidiary, Founder Group Limited (FGL) on Nasdaq. It entails the listing of 6.75% to 24.2% of enlarged FGL shares which will raise circa USD4.6-21.2mn. It plans to channel the proceeds for expansion of its RE business to Southeast Asia such as Singapore, Philippine, and Indonesia as well as for capital investment, working capital and potential merger and acquisition.

Commendable Approach to Fund RE Ambition

We are generally positive with the planned FGL listing on Nasdaq as it will enable its expansion in RE business to other countries without additional internal fund. Besides that, if there is a need in future, this can facilitate the monetisation of its investment in FGL. Under minimum scenario (i.e. IPO proceeds of USD4.6mn), FGL will be valued at USD68mn (or RM306mn @ USDMYR 4.5) which is above our current valuation at RM140mn. Following the IPO, RL expects its stake in FGL to be diluted to 32.2%-41.33% from 51% depending on amount raised from the IPO. Nonetheless, it will continue to consolidate FGL as a subsidiary of the company as it has procured voting right from Lee Seng Chi who is the current CEO of FGL which owns 32.97% stake in FGL. Post IPO listing, both parties will have a combined equity stake of circa 52.5% to 67.4%.

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

We maintain our BUY recommendation on RL with an unchanged fully-diluted SOP-derived TP of RM0.38. Our TP implies 13x FY24F P/E.

Source: BIMB Securities Research - 26 Dec 2023