Recent electricity tariff hikes have significantly increased the viability of solar power as an alternative energy source, potentially boosting investment in solar infrastructure in Malaysia and benefitting SAMAIDEN. Its long-term ambition to transform itself from a pure-play EPCC provider into a full-fledged RE player may also serve as another re-rating catalyst. We maintain our forecasts but raise our TP by 34% to RM1.15 (from RM0.86). Reiterate OUTPERFORM.

We recently held a company meeting and site visit to SAMAIDEN’s rooftop solar project in Sunway Nexis, Kota Damansara, Selangor. Below are some of our takeaways:

1. Maiden asset ownership. The Sunway Nexis rooftop solar is a 531kw grid-connected system that comes with a 20-year power purchase agreement (PPA) contract, which commenced in December 2022. Although annual profit contribution from this project is insignificant at the group level earnings, this marks SAMAIDEN’s maiden renewable energy asset ownership, which could serve as a springboard for them to target further asset ownerships in the future. The group has a long-term goal of becoming a full-fledged regional renewable energy player, extending their role from just being an EPCC contractor to include asset owner, and going beyond solar and venturing into biomass and biogas. As at 1QFY23, 99.6% of the group’s revenue is still from solar EPCC.

2. Staying busy amidst rising electricity costs. Given the rising electricity costs, the group is expecting to remain busy with the influx of orders expected. The higher electricity tariffs have served as a catalyst for businesses to adopt solar energy as a cheaper source of energy, which will benefit solar EPCC players such as SAMAIDEN.

3. Expecting to see a stronger 2HFY23. Although we are anticipating a flattish 2QFY23, a stronger 2HFY23 is expected, driven by billings progression of jobs at hand. Currently, its order book of ~RM325m is expected to keep them busy for the next 2-3 years.

Overall, we came away from the session feeling positive over the group’s long-term prospects. In the short-to-medium term, prospects also look promising as well as local demand for solar energy installation continued rising amidst higher electricity tariffs. We made no changes to our FY23F/FY24F earnings.

Maintain OUTPERFORM, albeit with a higher TP of RM1.15 (from RM0.86 previously), pegged to a higher valuation of 20x PER on FY24F EPS (from 15x previously), in line with the recent upwards re-rating of peers’ average valuation (e.g. SLVEST, SUNVIEW) to 20x forward earnings (from 15x previously) as the increased tariff surcharges would likely lead to further spike in orders for solar EPCC players. Note that our TP reflects a 5% premium given its 4-star ESG rating as appraised by us (see page 5).

We continue to like SAMAIDEN given its: (i) huge market share – second largest in the listed local solar EPCC market, (ii) ability to provide end-to-end services not offered by many of the smaller players, and (iii) outstanding track record of project execution and delivery.

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 - 10 Feb 2023