Investment Highlights

• Solar energy proxy. Samaiden Group Berhad (Samaiden)’s revenue is mainly generated from Engineering, Procurement, Construction and Commissioning (EPCC) (98.0%), RE and Environmental Consulting Services (2.0%). Its listing would present a good opportunity for solar and renewable energy

• Robust pretax profit compound annual growth rate (CAGR). We expect a 2-year pretax profit CAGR of 32.8% on the back of potential strong orders from LSS@MEnTARI which is expected to award to successful bidders in end of CY2020.

• Net cash position. Samaiden has been sitting at a net cash position since FY2017. Moving forward, the Group plans to raise RM29m from equity market which bodes well for the Group in future expansion with its negligible debt and minimal finance cost.

• Healthy orderbook. As of 30 Sept 2020, Samaiden’s orderbook stood at RM31.35m. Meanwhile, the Group is actively bidding jobs from Large Scale Solar Photovoltaic (LSSPV) Plant 3 and LSS@MEnTARI projects over the months to ensure the sustainability of orderbook. Samaiden is set to benefit greatly from the c.RM4 billion LSS@MEnTARI project, judging from its solid track records in LSSPV 1 & We believe government will scrutinise the job bidders’ background closely and to prioritise the projects to companies with majority local shareholdings.

• 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 estimated total installed capacity in Malaysia (MWp) is expected to grow at a CAGR of 50% from 438 in 2018 to 3,322 in 2023.

•  Government initiatives to spur green Malaysia has been actively participated in the solar industry with many policies being 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. Mysuria, Rural Electricity Supply Programme (BELB), and Sarawak Alternative Rural Electrification Scheme (SARES) being announced to further support the local solar PV industry. On top of that, government has allocated RM500m for rural electrification which will benefit more than 30,000 rural households (as announced in Budget 2020).

• Venturing into overseas with high growth potential. The Group is ambitious to expand its business to Vietnam within 24 months after listing to capture the tremendous solar PV market. Meanwhile, the Group has successfully secured first purchase order for the design and supply of solar PV modules and balance of system for a commercial building in Bac Lieu province, Vietnam. Partnership collaboration will be prioritized to explore business opportunities. We favour the move of venturing into Vietnam in terms of diversification and huge investment opportunity whereby it is supported by Revised National Power Development Master Plan VII. Vietnam expects to achieve a CAGR of 8% to meet forecasting demand of 129.5 GW, 21% will be generated from renewable sources.

• Banking on build-own-operate model and invest in RE power plants……Samaiden is vigilant to its business model from heavily reliant on EPCC which is project base. It plans to generate recurring income by investing in biogas power generation plant and solar PV power plant in Kelantan and Kedah respectively. We expect the biogas power plant to start contributing to the Group’s bottom line in FY23 to further diversify its income stream. Also, we highly doubt the sustainability of solar project tender in the long run as the country is bogged down with elevated debt on infrastructure spending.

•  ………as well as providing additional renewable energy services. The Group is planning to offer retro-commissioning of building and energy saving systems which will highly improve the efficiency of an existing building’s equipment and systems. In turn, the Group will be the owner of those equipment and the building owner will pay Samaiden for the energy cost savings over a period of time. We are sanguine on this strategy mainly due to the segment is able to generate sustainable and generous recurring income in the future to offset any possible core business downturn.

Valuation & Recommendation

• We derive a fair value of RM0.73 for Samaiden. Our valuation is based on 12x FY22F EPS, pegging at an upcycle PER valuation of small-cap players of 12x in local bourse. Our fair value of the stock renders 52% upside against the IPO price.

Key Risks

• Unanticipated increases in project

• Change of government policy to create uncertainty to the Group’s future prospect.

• Requires adequate financing in running operation.

• Persistent of low energy prices hamper demand from renewable sources.