Kenanga Research & Investment

Samaiden Group - Investing in a 7MW Biomass Plant

Publish date: Fri, 02 Feb 2024, 12:25 PM

SAMAIDEN has obtained the green light to build and operate a 7MW biomass power plant in Johor. The biomass power plant commands a higher tariff rate, translating to an IRR of 8% to 10% based on our estimates. We maintain our forecasts but raise our TP by 3% to RM1.51 (from RM1.46). Maintain OUTPERFORM.

SAMAIDEN has received the green light to build and operate a 7MW biomass power plant in Tangkak, Johor, which will supply a net export capacity of 6MW to TENAGA (OP; TP: RM11.90). The 21-year agreement will commence in Jan 2027.

The FiT rate for the power plant is RM0.34/kWh. Based on our estimates, it will fetch annual revenue of RM14m at a PAT margin of 32% and the IRR for the biomass power plant at 8% to 10%.

Outlook. SAMAIDEN’s long-term growth is well-supported by the National Energy Transition Roadmap (NETR) which sets an ambitious target of RE to make up 70% of total power generation capacity by 2050. Also, businesses in general, driven by commercial reasons (i.e. to save cost) and ESG considerations, have voluntarily invested in solar energy generation assets following the recent hikes in electricity tariffs.

Forecasts. Maintained as we do not expect contribution from the biomass power plant during our forecast period.

Valuations. However, we raise our TP by 3% to RM1.51 (from RM1.46), imputing the NPV of the biomass power plant. There is no change to our valuation basis of 30x fully-diluted FY25F EPS of 4.9 sen for its EPCC segment, in line with the average forward PER of peers such as SVLEST (Not Rated) and SUNVIEW (Not Rated) and DCF for its CGPP and biomass assets. Our TP imputes a 5% premium given its 4-star ESG rating as appraised by us (see page 4).

Investment case. We continue to like SAMAIDEN for: (i) the bright outlook of the RE sector in Malaysia, underpinned by the government’s goal of RE making up 70% of total generation mix by 2050, (ii) the increased commercial viability of solar power projects on falling solar panel prices and the export potential of RE, (iii) its position as one of the top players in the local solar EPCC market, (iv) its ability to provide endto-end solutions, including financing, and (v) its proven track record in delivering projects on time and within budget. Maintain OUTPERFORM.

Risks to our call include: (i) the government dials back on RE policy, (ii) influx of new players in the EPCC space, intensifying competition, (iii) project execution risks including cost overrun and project delays, and (iv) escalating cost of inputs, particularly, solar panel and labour.

Source: Kenanga Research - 2 Feb 2024

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