SAMAIDEN’s sterling 1HFY23 results came in within expectation, as higher volume of EPCC works during the quarter helped offset the poorer margins from LSS projects. The recent electricity tariff hikes locally have significantly increased the viability of solar power as an alternative energy source, boosting investment in solar infrastructure. We maintain our forecasts, TP of RM1.15 and OUTPERFORM call.

Results deemed broadly within expectations. 1HFY23 core net profit came in at RM5m, making up 35% and 26% of our and consensus full year earnings forecasts, respectively. Nonetheless, we deem this to be broadly in-line with expectation, in anticipation of stronger quarters ahead, especially with the delivery of upcoming LSS4 projects. As a comparison, 1HFY22 profit also made up 35% of its full-year earnings last financial year.

Earnings lifted by higher EPCC works. 1HFY23 core net profit jumped 15% YoY, in tandem with the stronger revenue, thanks to greater EPCC works done during the period. Nonetheless, this was partially offset by the poorer margins (gross margins fell to 15% from 18% last year) amidst poorer job margin mix from LSS projects.

Prospects remain intact. As Malaysia renewable energy (RE) space is largely dominated by solar, we foresee >90% of upcoming new RE capacity within the country 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. This is likely to benefit RE service providers such as SAMAIDEN in the long term. Currently, the group has an order book of RM325m, which will keep it busy for the next three years.

Forecasts. Maintained.

Maintain OUTPERFORM, with unchanged TP of RM1.15 – pegged to 20x PER on FY24F EPS, in line with peer valuations (e.g. SVLEST, SUNVIEW). 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 players lack, and (iii) outstanding track record of project execution and delivery within the space.

The recent electricity tariff hikes locally have significantly increased the viability of solar power as an alternative energy source, boosting investment in solar infrastructure. SAMAIDEN’s long-term plans of transforming itself from a pure-play EPCC provider to a full-fledged RE player may also serve as another re-rating catalyst.

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 - 22 Feb 2023