Making its debut on the ACE Market today, Solarvest Holdings Bhd (“SLVEST”) is the only listed pure solar player in Bursa Malaysia. We are positive on its earnings traction which achieved a robust 3-year CAGR net profit growth of 39%, supported by favorable industry outlook and government initiatives on the solar industry. BUY with a target price of RM0.50 based on 12.4x PER FY20 as per the FBM Bursa Small Cap Index.

SLVEST is a full-fledged EPCC contractor specialising in solar photovoltaics (“PV”) system for residential, commercial, industrial properties and Large Scale Solar PV Plants (“LSSPV”) in addition to being an owner of a 1MWp solar PV plant in Kedah. The group is capable of constructing various types of solar PV system and has to date installed a total capacity of more than 200MWp. The total solar PV installed capacity in Malaysia is projected to grow by an impressive CAGR of 50%, from 438MW in 2018 to 3,322MW in 2023. This is driven by rising government initiatives to increase local participation in various national solar PV programmes such as NEM, MySuria, SARE and LSSPV programmes as well as the aspiration to achieve 20% Renewable Energy in the energy mix by 2025.

RM3m of the IPO proceeds will be utilised for business expansion to widen geographical reach to the Southern region of Peninsular Malaysia, Taiwan and Vietnam. To reduce dependency on EPCC segment and pursue a steady recurring income, SLVEST will to participate as an owner of solar PV plants in future bids. The targeted rate of return for the LSSPV investment is 8%-10% and such investment will be financed by internally generated funds or bank borrowings. Meanwhile, bulk of the proceeds (55.5%) is earmarked as working capital and 11.5% is allocated for capital expenditure. RM5m of the proceeds will be used for bank borrowings repayment.

SLVEST has an unbilled order book of RM184.5m which will contribute progressively to the group’s revenue until FY2021. Balance sheet is healthy with net cash position prior listing. The group also achieved a high return on equity of 35% in FY19. Given SLVEST track record on LSSPV1 & 2, we believe it stands a good chance to secure projects from the RM2bn LSSPV3.

Source: Rakuten Research - 26 Nov 2019