Kenanga Research & Investment

Samaiden Group - A Cloudy Interval

Publish date: Fri, 24 May 2024, 10:44 AM

SAMAIDEN’s 9MFY24 results disappointed on a low blended margin realised from its solar EPCC jobs. Its 9MFY24 core net profit still improved 15% YoY on strong project deliveries. We cut our FY24F earnings forecast by 5% but maintain our TP of RM1.51. Although strong solar EPCC job flow positively underpinned its prospects, we downgrade our call to MARKET PERFORM from OUTPERFORM due to the recent run-up in its share price.

Its 9MFY24 core net profit of RM10.2m disappointed coming in at only 61% and 52% of our full-year forecast and full-year consensus estimate, respectively. The variance against our forecast came largely from a lower-than-expected blended margin realised from its solar EPCC jobs.

YoY, its 9MFY24 revenue surged 35% as work progress for EPCC jobs accelerated, particularly the delivery of the RM188m EPCC job for the 50MW LSS4 project of UZMA (OP; TP: RM1.45). However, its core net profit rose by only 15% due to: (i) the compression in its gross margin to 13% from 14% a year ago, weighed down by low-margin LSS projects, and (ii) higher staff and finance costs.

QoQ, similarly, its 3QFY24 core net profit surged 30% on a 54% expansion in its top line mainly attributable to significant deliveries of solar EPCC jobs.

Outlook. We expect a new wave of solar EPCC jobs in coming months underpinned by: (i) the 800MW Corporate Green Power Programme (CGPP) with an end-2025 completion deadline, (ii) the 2GW LSS5, the largest amongst the five LSS programmes, which also allows developers to bid up to 500MW (vs. only 50MW previously) with commissioning scheduled in 2026, (iii) an additional quota of 400MW (residential: 100MW; commercial: 300MW) from Feb to Dec 2024 under the Net Energy Metering (NEM) initiative, and (iv) the Solar For Rakyat Incentive Scheme (solaRIS) (using the additional 100W NEM quota for the residential segment) where participants will be offered rebates ranging from RM1,000/kWac up to RM4,000. We estimate that the CGPP and LSS5 will translate to at least RM2.4b and RM5b, respectively, worth of solar EPCC contracts. SAMAIDEN’s earnings visibility will also be underpinned by an outstanding order book of RM354.3m that will keep it busy for at least the next 18 months.

Forecasts. We cut our FY24F earnings forecast by 5% to reflect a blended margin from its solar EPCC jobs but maintain our FY25F numbers.

Valuations. However, we maintain our TP of RM1.51 based on SoP valuation, valuing its EPCC segment at 30x fully-diluted FY25F EPS of 4.9 sen, in line with the average forward PER of peers such as SVLEST (OP; TP: RM1.91) 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 end- to-end solutions, including financing, and (v) its proven track record in delivering projects on time and within budget. Downgrade to MARKET PERFORM from OUTPERFORM as valuations have become rich after the recent run-up in its share price.

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 - 24 May 2024

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