• Maintain BUY and SOP-derived MYR1.34 TP, 39.9% upside. 9MFY23’s (Mar) core profit, which grew more than 4x to MYR14.4m, was within our expectations, driven by the recognition of the Large Scale Solar 4 (LSS4) projects. We remain positive on the stock given its robust orderbook of MYR595m, which is set to cover FY23-24 revenue. The electricity tariff hike as well as a potential slew of contract flows from various government initiatives towards the sustainable energy pledge, are also pull factors.

• Results met our expectations, but below Street’s. The 9MFY23 revenue of MYR252.3m (+151.3% YoY) and core profit of MYR14.4m (+4.5x YoY) accounted for 74.9% and 68.2% of our and Street full-year forecasts. The better profitability YoY was aided by the significantly higher revenue, which leads to better margin (EBIT margin at 8.9% vs 6.2%) on better economies of scale. The sequentially higher bottomline of MYR5.4m (+29.2% QoQ) is attributed to the lower effective tax rate (-25.1% QoQ), slightly offset by the higher administrative expenses (+14.8% QoQ). All the performance metrics improved YoY, given the low base effect of 3QFY22, which was still affected by various movement restrictions.

• The outstanding orderbook remains robust at MYR595m (-10% QoQ as some orders were recognised) due to strong solar energy demand and the company’s involvement in LSS4 projects. The imposition of a higher 20 sen/kWh imbalance cost pass-through surcharge from the previous 3.7 sen/kWh should further boost the group’s orderbook as medium- and high- voltage commercial and industrial (C&I) users are expediting their switch to solar energy. Solarvest also plans to capitalise on the recent release of 600MW quota for solar PV assets under the Corporate Green Power Programme (CGPP), to come in mid-CY23 as the closing application date has been extended to 20 Mar. Furthermore, we expect maiden contributions from its LSS4 assets in FY24 as two solar farms are scheduled to be commissioned by May 2023 and another in Oct 2023.

• Forecasts and TP. Our earnings forecasts are unchanged as results were in line. We keep our SOP-derived TP (Figure 2) at MYR1.34, based on ascribed 25x FY24F P/E (at its 3-year mean) and a DCF (WACC: 5.4%) on its LSS4 solar assets. We are upbeat on the stock’s growth prospect amid the improving conditions and sentiment for the solar sector, potential positive news flow from the CGPP, and further C&I contract wins in the coming months. Our TP also incorporates a 6% ESG premium, given that Solarvest’s 3.30 ESG score is above the country median. Key risks to our call include lower-than-expected contract wins, unexpected changes in project costs, and lack of progress in its overseas ventures in Taiwan and the Philippines.

Source: RHB Research - 28 Feb 2023