• Upgrade to BUY from Neutral, with new SOP-based MYR1.34 TP from MYR0.77, 23% upside. We think Malaysia’s ongoing pursuit to achieve net zero greenhouse gas emissions by 2050 will spur demand for solar energy and provide abundant contract flows for players like Solarvest. The electricity tariff hike and down-trending material prices are boons for accelerated adoption. We also expect FY24F (Mar) earnings to reach a new milestone with maiden Large Scale Solar 4 (LSS4) contributions and backed by a strong orderbook.

• Full steam ahead. Given the input costs de-escalation and LSS4’s timeline, we should see higher orderbook recognitions in the coming 12 months. Recap: Solarvest’s orderbook stands at MYR662m as of 1HFY23. Moving forward, it is focusing on bringing in more developer contracts with larger value and longer terms instead of pure EPCC projects – a move to generate steady commercial & industrial (C&I) replenishments. Solarvest is also set to benefit from the pull factor on the imposition of a 20 sen/kWh surcharge on C&I users. It is in the final stages of securing a few more C&I contracts as firms are expediting their switch to efficient energy sources to capitalise on declining solar panel prices. Additionally, any contract win from the 600MW Corporate Green Power Programme (CGPP) should further boost the group’s orderbook come mid-CY23.

• LSS4 assets update. All three of Solarvest’s LSS4 projects have achieved financial close with two assets’ scheduled for commercial operation dates (CODs) in Mar 2023. The other’s COD is in Oct 2023. Upon completion, the projects are expected to contribute c.MYR8-9m to PAT annually.

• Tapping into other solutions. Solarvest aims to break into the EV infrastructure business due to this segment’s potential growth ahead. Evidently, the Natural Resources, Environment & Climate Change Ministry also said the upcoming revised Budget 2023 will include more EV-related incentives as part of a target to install 10,000 EV charging points by 2025, SOLAR will be partnering with investors to be the developer-operator.

• Earnings and TP revisions. We maintain our FY23F earnings but raise FY24F-25F bottomline by 8-6% on the assumption of higher EPCC orders given the reasons above. Given its March year-end, we think FY23F margins will still be affected by 2022’s margins contraction and expect a slight earnings contraction in FY25 on higher finance cost assumptions. Our new SOP-derived TP (Figure 1) is raised to MYR1.34 as we: i) Roll forward our valuation base year, ii) increase earnings estimates, and iii) ascribe a higher target P/E of 25x (at its 3-year average) from 20x, given the re-rating of the renewable energy sector – this is underpinned by the improving environment and upcoming contract flows from the CGPP and LSS initiatives. Our TP also includes a 6% ESG premium given Solarvest’s 3.30 ESG score, which is above the country median. Key risks include lower-than-expected contract wins, unexpected changes in project costs, and lack of progress of its overseas ventures in Taiwan and the Philippines.

Source: RHB Research - 7 Feb 2023