We returned from a small group meeting feeling positive, with management taking the opportunity detailing its diversification plans into the solar energy space. Overall, solar is expected to be the main driver of the group’s non-oil and gas business, expected to reach ~RM500m revenue in the near term by 2025. While we believe execution and results delivery will still be key, any fruition of its diversification plans would serve as an immediate re-rating catalyst. Maintain OP with TP of RM0.68.

Solar to be main driver of diversification plans. Recall that earlier, the group had set a five-year roadmap of achieving RM1.5b revenue by 2025 – of which 40% is expected to be derived from non-oil and gas ventures. We have now learnt that the group is strategizing solar as the main growth driver of its non-oil and gas diversification plans – putting them in direct comparison with other listed peers e.g. SLVEST, SAMAIDEN, and PEKAT. UZMA made its maiden foray into the space through securing a 50MW solar project from the LSS4 tender last year, as well as the acquisition of Suria Infiniti – a solar EPCC player established since 2011.

Short, medium and long-term goals. Currently, UZMA’s solar business already has an order-book of RM935m – with LSS4 (both PPA and EPCC) being the largest contributor. While over the long term, the group intends to be a fully integrated solar player – i.e. having competent operations in all three areas of EPCC, O&M and asset ownership within the solar space, management has mentioned that near-term growth will mostly be driven by securement of EPCC projects, as well as M&As of legacy PPAs (e.g. LSS1 projects) in order to build up its track record. Over the near-term, the group is aiming to reach RM500m revenue from solar by 2025, while in the medium-term, the group intends to reach ~RM1b revenue by 2030 from its solar ventures.

Huge growth potential in the local solar space. The government’s Malaysia Renewable Energy Roadmap (MyRER) aims for the country to achieve 31% renewable energy capacity by 2025, and 40% by 2035. This translates to >4GW of additional renewable energy capacity by 2025, and a further >5GW by 2035. Of the new renewable energy requirements, >90% is expected to be derived from solar – making solar the fastest growing source of renewable energy within Malaysia. This would translate to further growth opportunities for UZMA’s solar ventures, in which it expects to actively participate in any upcoming solar programmes being rolled out by the government (e.g. LSS, NEM etc) in the near future.

Maintain OUTPERFORM, with unchanged TP of RM0.68 – pegged to 0.5x PBV, broadly in-line with its mean valuations.

Overall, we concluded the small group meeting feeling positive over UZMA’s longer-term prospects within the solar industry. However, we do note that execution and results delivery will still be crucial. While the solar space is expected to see huge growth potential in the coming years, especially in Malaysia, competition within the space is also stiff as it is crowded with many other competent and well-established players, with barriers to entry also relatively low. Nonetheless, we also believe that any fruition or materialisation of UZMA’s ventures into the solar space will serve as immediate re-rating catalyst. Currently, listed solar players (e.g. SLVEST, SAMAIDEN, and PEKAT) are trading at a huge valuation premium compared to UZMA.

Risks to our call include: (i) lower-than-expected margins, (ii) slower- than-expected order-book replenishment, and (iii) cost overruns.

Source: Kenanga Research - 26 Apr 2022