Kenanga Research & Investment

Solarvest Holdings - Opportunities Awash

Publish date: Fri, 01 Mar 2024, 05:55 PM

SLVEST reaffirmed its guidance for stronger quarters ahead driven by potential jobs from Corporate Green Power Programme (CGPP). Recently unveiled LSS5 and new net energy metering (NEM) quota are another shot in the arm for solar EPCC players.

We maintain our forecasts, TP of RM1.88 and OUTPERFORM call.

We came away from SLVEST’s post-results briefing feeling optimistic on its outlook. The key takeaways are as follows:

1. It expects a boost to its current outstanding orderbook of RM242m (-16% QoQ) (LSS: 13%, Rooftop: 87%) from new jobs under CGPP by 1QFY25. We believe SLVEST stands a strong chance to secure at least 30% or RM720m of the total RM2.4b PV system EPCC jobs under CGPP based on our estimate, Meanwhile, its outstanding tender book stands at 4.6GWp (Malaysia: 61%, Regional: 39%).

2. In line with the National Energy Transition Roadmap (NETR), the Energy Commission (EC) is embarking on LSS5 with a quota of 2GW. It will issue for the request for proposal (RFP) documents from Apr 2024. SLVEST foresees the EC to place more emphasis on track records under LSS5’s bidding framework in addition to pricing. Given it being an asset owner in LSS4, SLVEST is set to garner a meaningful slice of action. SLVEST expect EPCC jobs under LSS5 to hit the market in 2HCY25. We estimate that this initiative will generate about RM5b worth of projects for the solar EPCC sector, keeping players busy until 2028.

3. SLVEST believes solar panel prices may hit an all-time low of 10 US cents/W (just a whisker away from the current market price of 11US cents/W, see Exhibit 1) due to oversupply in China. However, this is partially eroded by a weak MYR.

Forecasts. Maintained.

Valuations. We also maintain our TP of RM1.88 based on SoP valuation, valuing its EPCC segment at 30x FY26F PER, in-line with the average historical 1-year forward PER of the solar EPCC sector; and its LSS4, CGPP and Powervest assets by discounted cash flow (see Exhibit 2). Note that our TP reflects a 5% premium given a 4-star ESG as appraised by us (see Page 4).

Investment case. We like SLVEST for: (i) the bright outlook of the RE market in Malaysia, underpinned by the government’s strong commitment towards RE, the export potential of RE and the increased commercial viability of solar power projects on falling solar panel prices, (ii) its strong market position, execution track record, clientele and value proposition of its PV system financing programme, and (iii) its strong earnings visibility backed by a sizeable outstanding order and tender books, and recurring incomes from a growing portfolio of solar assets. Maintain OUTPERFORM.

Risks to our call include: (i) the government dials back on RE policy, (ii) influx of new players in the solar EPCC space, intensifying competition, and (iii) escalation in project costs.

Source: Kenanga Research - 1 Mar 2024

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