SLVEST is placing out up to 6% new shares at RM1.41/share, raising net proceeds of RM56m to fund its capex programmes and working capital. We are unperturbed by a mild EPS dilution and cut our FY25-26F EPS forecasts by 1% and 2%, respectively, but fine-tune up our TP by 2% to RM1.91 (from RM1.88). Maintain OUTPERFORM.

SLVEST has proposed to undertake a private placement of 40.2m new shares, representing up to 6% of its total share base, at an indicative placement price of RM1.41/share.

Net proceeds of RM56.0m will be channel towards its Powervest solar financing program (with an installed capacity of about 4MWp), its three solar plants under the CGPP and working capital (see Exhibit 1).

Based on our estimates, the exercise will dilute its FY25F and FY26F EPS by 1% and 2%, respectively, as a 6% increase in its share base is partially mitigated by interest savings of RM2.1m annually.

The proceeds will reduce its net debt and gearing of RM107.1m and 0.5x as of end-3QFY24 to RM51.1m and 0.2x, respectively.

Forecasts. We raise our FY25-26F net profit forecasts by 4% and 3% respectively (to reflect the interest savings) but cut our FY25-26F EPS forecasts by 1% and 2% respectively (to factor in the dilution from an enlarged share base).

Valuations. However, we fine-tune up our SoP-based TP by 2% to RM1.91 (from RM1.88) as we recalibrate our estimates for potential proceeds from the conversion of its outstanding warrants and ESOS. There is no change to our valuation bases, i.e. 30x FY26F PER for its EPCC segment (in-line with the average historical 1-year forward PER of the solar EPCC sector) and DCF at a discount rate of 5.5% to 5.6% for its LSS4, CGPP and Powervest assets (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 improved 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 - 12 Apr 2024