• Upgrade to BUY from Neutral, with new SOP-derived MYR1.06 TP from MYR0.76, 30% upside. We are upbeat on Samaiden upon the recovery of the solar sector as panel prices have already moderated meaningfully. The increasing initiatives in clean energy to achieve Malaysia’s target of 31% renewable energy (RE) mix by 2025 will further support the group’s 3-year earnings CAGR of 33.8%, driven by orderbook growth. We believe the stock is currently trading at an undemanding valuation of 13x FY24F (Jun) P/E given its improving prospects.

• Outlook. Similar to other solar players, SAMAIDEN is poised to benefit from softening polysilicon prices, which have fallen by more than 50% since its peak in Aug 2022. Against this backdrop, we expect projects to resume and C&I orders to pick up in FY23 as previously, clients adopted a wait- and-see approach given the elevated panel prices. The recent tariff hike implemented in 1H23 is anticipated to further strengthen demand as it gives a greater incentive to install the solar PV system for C&I players to save costs. As at end-Sep 2022, the group’s orderbook stood at MYR325m which is set to cover FY23F-24F.

• Building its asset ownership. The Corporate Green Power Programme (CGPP) should help replenish the group’s orderbook (in FY22, it secured three LSS EPCC contracts) as well as provide entry into solar asset ownership as SAMAIDEN is participating in the bidding of the 600MW quota. This is in line with the strategic plan to enlarge its clean energy portfolio to generate a diverse recurring income stream for the purpose of balancing out seasonal EPCC projects. It is not only aiming for solar farms but also eyeing any renewable energy and waste-to-energy power plants.

• Samaiden’s c.MYR0.6bn tenderbook, albeit still exclusive to the domestic market, consists of EPCC jobs, asset developer contracts and biomass projects with a 90:8:2 breakdown. Management guided that its overseas ventures have had some leads that could bear fruit in the coming years. It has several partnership agreements including with Management Venture Asia (Cambodia) Ltd, Thingnario Ltd and Aneka Jaringan Holdings (ANEKA MK, NR) to expand regionally.

• Upgrade to BUY. We raise our SOP-derived TP to MYR1.06 from MYR0.76 after increasing our FY23F-24F earnings by 2% on higher C&I EPCC order assumptions, pegged to 16x FY24F P/E from 15x FY23F P/E given the re-rating of the segment on softening panel prices and the arrival of the CGPP. The 16x P/E we ascribe is at a premium to its FY24 (Mar) peer average of 14x, which is justified given SAMAIDEN’s higher earnings growth. However, it is at a discount to larger peer Solarvest’s (SOLAR MK, BUY, TP: MYR1.34) c.25x given the latter had bagged a few contracts in the previous LSS round, aside from the larger regional presence. Our TP includes a 4% ESG premium for its above-country median ESG score.

• Downside risks include the inability to secure more projects, competition risks, and higher-than-expected project costs.

Source: RHB Research - 7 Feb 2023