Another private placement exercise may be in store for SLVEST to fund potential LSS5 assets. While we are mindful about the potential earnings dilution, recurring incomes from solar assets could strengthen its earnings visibility and stability. Meanwhile, it guided for PV system EPCC jobs under Corporate Green Power Programme (CGPP) to hit the market this month. We maintain our forecasts, TP of RM1.91 and OUTPERFORM rating.

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

1. We understand that another private placement exercise may be in store for SLVEST to fund potential LSS5 assets. We understand that SLVEST is eyeing a much bigger installed capacity under LSS5. While we are mindful about the potential earnings dilution from the new shares, we take comfort that the new equity will go into funding assets that will generate recurring incomes, strengthening SLVEST’s earnings visibility and stability over the long term. Meanwhile, SLVEST guided for full contribution from its LSS4 assets (67.3MWp) to come in FY25.

2. SLVEST said that the award of PV system EPCC jobs under the CGPP is likely to happen this month. Recall, we project SLVEST to secure at least 30% or RM720m of a total RM2.4b worth of jobs under this initiative. Currently, its outstanding order book stands at RM242m (LSS: 3%, Rooftop: 97%) while its outstanding tender book stands at 6.1GWp (Malaysia: 66%, Regional: 34%).

3. SLVEST shared that sales of renewable energy certificates (RECs) contributed significantly to its bottom line in FY24 (a large part of “other profits” that made up 17% of group PBT). There is a strong demand for RECs from corporations stemming from the Scope 2 emission reduction initiative. Also, data centres, in order to achieve the “green” status, could potentially become buyers for RECs. SLVEST’s RECs are competitively priced at USD5-6/MW, compared to USD10/MW of TNB’s Green Electricity Tariff (GET).

Forecasts. Maintained.

Valuations. We also maintain our TP of RM1.91 based on SoP valuation, ascribing 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 1). 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 - 4 Jun 2024