Investment Highlights

• Pure solar energy proxy. - Solarvest generates revenue from Engineering, Procurement, Construction and Commissioning (96.0%), operations & maintenance (0.3%), and solar PV plant (1.4%). Its listing would present a good proxy to the solar and renewable energy industry.

• Steady earnings growth – We expect net profit of RM11.2m (+1.2% YoY) and RM17m (+51.4% YoY) for FY20F and FY21F respectively.

• Net cash position - Solarvest has a healthy balance sheet with a net cash position, high return of equity (35.0%), and strong shareholders fund (RM 31.7 mil).

• Healthy order book – As of 31 Aug 2019, Solarvest’s orderbook stands at RM200.1m. In recent months, Solarvest was able to replenish its orderbook with commercial & industrial jobs when its Large Scale Solar Photovoltaic Plant (LSSPV) projects approach end phases. A diversified customer mix enables Solarvest to be occupied and utilize its available capacity at all times. Solarvest is set to benefit from the RM2 billion LSSPV 3 project, which will be tendered by the government in upcoming months, judging from its solid track records in LSSPV 1 & 2.

• Favourable industry outlook. - Demand for solar PV system is anticipated to grow as the cost of global PV value chain pricing has been on a downtrend, allowing the market to enjoy low cost of solar PV system in this technology maturing cycle. The forecasted total installed capacity in Malaysia (MWp) expected to grow at a CAGR of 50% from 438 in 2018 to 3,322 in 2023.

• Government initiatives to spur green energy - The government is increasing indigenous participation in the solar industry with many policies introduced such as the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) incentives until 2023 extension was tabled in Budget 2020, along with 70% income tax exemption of up to 10 years for

companies undertaking solar leasing activities, the Supply Agreement of Renewable Energy (SARE) programme, as well as the revised the Net Energy Metering (NEM).

Valuation & Recommendation

• We derive a fair value of RM0.48 for Solarvest. Our valuation is based on 11x FY21F EPS which is in line with its peer average PER.

Key Risks

• Unanticipated increases in project costs

• High competition in the industry

• Subject to potential defects liability claims and performance ratio guarantee

• Solarvest might not maintain its pioneer status

• Solarvest requires adequate financing in running operation

Source: JF Apex Securities Research - 6 Nov 2019