• Maintain BUY, new MYR1.36 TP from MYR1.34, 35% upside. Solarvest's FY23 (Mar) record-high profit of MYR19.8m met expectations. We remain upbeat on its earnings growth trajectory going into FY24F, supported by a robust orderbook and the maiden contribution from its solar asset. The stock is a beneficiary of the country’s energy transition pledge, with an abundance of order replenishment opportunities, and as solar energy is slated to become the dominant renewable energy (RE) source in the system.

• Within expectations. At 103% and 97% of our and Street’s full-year estimates, Solarvest’s FY23 core net profit of MYR19.8m met expectations. YoY, FY23 core profit more than doubled on the back of a 108% rise in revenue, mainly driven by the recognition of the construction progress of large-scale solar 4 (LSS4) projects. However, GP margin compressed to 17.8% (FY22: 19.9%) due to high material prices and lower margins for large-scale projects in general.

• Outstanding orderbook was at MYR550m (cover ratio of 1.5x) as of 31 Mar 2023 (3QFY23: MYR595m). We anticipate shortlisted bidders for the Corporate Green Power Programme to be announced in 2H23 – this would provide further contract replenishment for Solarvest, on top of its robust commercial and industrial (C&I) orders. We also expect maiden contributions (MYR7-10m pa) from its LSS4 assets in FY24, as the two solar farms (total of 50MW) are scheduled to be commissioned in 3Q23 and 4Q23.

• Forecasts and TP. We tweak our FY25 forecasts by 6.8% on account of better margins and introduce FY26 earnings estimates of MYR37m, representing an 8.5% increase YoY on the assumption of a MYR606m orderbook replenishment coming from utility scale projects and C&I jobs. Our SOP-derived TP (Figure 2) is based on unchanged 25x FY24F P/E (at its 3-year mean) and DCF (WACC: 5.4%) on its LSS4 solar assets. However, we arrive at our new MYR1.36 TP after ascribing an 8% ESG premium based on its higher ESG score of 3.4 from 3.3 previously.

• Key risks include lower-than-expected contract wins, unexpected changes in project costs, and lack of progress in its overseas ventures in Taiwan and the Philippines.

• ESG framework update. As there is now greater focus on the E pillar due to critical climate change issues, we tweaked our ESG weightage. We assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. For further details, see our 2 May thematic research note Envisioning a Better Future.

Source: RHB Research - 26 May 2023