SAMAIDEN’s stronger 1QFY23 results came in within expectations, helped by higher EPCC works during the quarter, albeit partially offset by poorer job margin mix from LSS projects. Going forward, we expect SAMAIDEN to continue benefiting from the accelerated renewable energy adoption in Malaysia. Maintain OUTPERFORM with TP of RM0.86.

Results deemed broadly within expectations. 1QFY23 core net profit came in at RM2.4m, making up 17% and 13% of our and consensus full-year earnings forecasts, respectively. Nonetheless, we deem this to be broadly within expectations, in anticipation of stronger quarters ahead, especially with the delivery of upcoming LSS4 projects. Additionally, 1Q has seasonally been the group’s weakest quarter. As a comparison, 1QFY22 and 1QFY21 made up 16% and 17% of the full-year earnings, respectively.

Earnings lifted from higher EPCC works. 1QFY23 core net profit jumped 19% YoY, in tandem with the stronger revenue, thanks to greater EPCC works done during the quarter. Nonetheless, this was partially offset by the poorer margins (gross margins fell to 14%, from 18% last year) amidst poorer job margin mix from LSS projects.

Stronger earnings to come. Malaysia’s renewable energy (RE) space is largely dominated by solar. We foresee >90% of upcoming new RE capacity to be solar powered. Anchored by continued government-led programmes, Malaysia is targeting RE to make up 31% of total power generation capacity by 2025, and 40% by 2035. SAMAIDEN currently has an orderbook of RM325m, which will keep it busy for the next three years.

Forecasts. We made no changes to our FY23-24F numbers.

Maintain OUTPERFORM, with unchanged TP of RM0.86 – pegged to 15x PER on FY24F EPS, in line with peer valuation (e.g. SVLEST). Note that our TP reflects a 5% premium given its 4-star ESG rating as appraised by us (see page 4).

We like SAMAIDEN for its: (i) huge market share – second largest in the high-growth local solar EPCC market, (ii) ability to provide end-to-end services, including securement of financing – of which many smaller names are unable to do so, and (iii) outstanding track record of project execution and delivery within the space.

Risks to our call include: (i) the government dials back on RE policy, (ii) project execution risks including cost overrun and project delays, and (iii) escalating cost of inputs, particularly, solar panel and labour.

Source: Kenanga Research - 17 Nov 2022