SLVEST is acquiring office space and rooftop retail unit in Bangsar South, with a combined built-up area of 39,375 sq ft for RM48.7m cash, to set up its new headquarters. We believe SLVEST is paying a fair price for these units. We maintain our forecasts, TP of RM1.91 and OUTPERFORM rating.

SLVEST is acquiring office space and rooftop retail unit with a total built up area of 39,375 sq ft (Exhibit 1) at Solarvest Tower which is located in Bangsar South from CHGP (Not Rated) for RM48.7m cash, translating to RM1.2k per sq ft (psf). The proposed acquisition is expected to be completed in 2HCY24.

SLVEST is currently leasing office space in Petaling Jaya for its headquarters and operational activities. With the proposed acquisition, SLVEST will be able to establish a new headquarters in Bangsar South, securing a permanent business premise. As of 23 May 2024, Solarvest Tower is approximately 40% completed, and is expected to be fully completed by March 2028.

We believe SLVEST is securing a fair deal given the market price for office and retail spaces in Bangsar South range between RM1.1k- RM1.4k psf, according to listings on iProperty. The acquisition will increase its net debt and gearing of RM99.2m and 0.4x as of 4QFY24 to RM147.9m and 0.6x, respectively, which we believe is still manageable for the group.

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 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 - 14 Jun 2024