SAMAIDEN’s 9MFY23 results disappointed. Its strong top line performance (as work progress accelerated) was negated by low margin LCC projects and higher cost. However, we are unperturbed as its prospects are strong, underpinned by the recent lifting of the ban on RE exports, electricity hikes and the Corporate Green Power Programme (CGPP). We cut our FY23F earnings by 14% but keep our FY24F numbers. We maintain our TP of RM1.15 and OUTPERFORM call.

Below our expectation. 9MFY23 core net profit of RM7m disappointed, making up only 48% and 46% of our full-year forecast and the full-year consensus estimate, respectively. The key variance against our forecast came from higher-than-expected staff cost and professional fees and listing expenses (pursuant to the transfer from ACE to Main market).

Results’ highlights. YoY, 9MFY23 revenue jumped 29% mainly as work progress for EPCC jobs accelerated. However, core net profit dropped 21% due to: (i) compression in gross margin to 14% from 18% a year ago as it delivered more low-margin LSS projects, and (ii) higher staff cost, professional fees and listing expenses.

Promising perspective. Going forward, we foresee >90% of the upcoming RE capacity (>275GW) in Malaysia will be derived from solar power (269GW) as it currently dominates the country’s RE sector. This projection is supported by the Malaysian government’s ongoing initiatives by setting ambitious targets to make up 31% of total power generation capacity by 2025, and 40% by 2035 as well as the recent support for lifting ban on RE exports as cross-border businesses will open up more opportunities in the sector.

Furthermore, the hike of electricity tariffs served as a catalyst for businesses to adopt solar energy as a more cost-effective energy source coupled with declining polysilicon price, will benefit solar EPCC players such as SAMAIDEN. It is also worth noting that SAMAIDEN’s long-term plan of transforming itself from a pure-play EPCC provider to a full-fledged RE player may also serve as another re-rating catalyst. With that said, the group will take advantage on the recent release of additional quota of 200MW, raising the total to 800MW for solar PV assets quota under the CGPP, with an extended closing application date on 31 Dec 2023. The program will help replenish the group’s order book, ultimately benefiting the group in the long run. Currently, the group has an order book of RM246m, which will keep it busy for the next three years.

Forecasts. We cut our FY23F earnings forecast by 14% to account for higher cost but maintain our FY24F numbers.

However, we maintain our TP of RM1.15 – pegged to 25x PER on FY24F EPS (from 20x previously), in line with the recent re-rating of peer’s average valuations (e.g. SVLEST, SUNVIEW) as the increased tariff surcharges, CGPP and lifting ban on RE exports would likely lead to further spike in orders for solar players. Note that our TP reflects a 5% premium given its 4-star ESG rating as appraised by us (see page 4).

Investment thesis. 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. Maintain OUTPERFORM.

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 - 25 May 2023