• Maintain BUY with new SOP-derived MYR1.28 TP from MYR1.36, 26% upside. Post briefing, we remain optimistic as Solarvest continues growing its asset portfolio – providing recurring income. The 2.5GW tenderbook reflects the growing demand for solar energy, which should benefit the group by providing replenishment opportunities as well as scaling up its regional presence. Moreover, we have seen many policy shifts by the Government in its journey to increase renewable energy (RE) adoption.

• LSS4 orders to be realised in FY24. As of FY23, Solarvest’s orderbook stands at MYR550m, with a 62:38 split between Large Scale Solar (LSS) and commercial & industrial (C&I). As per management guidance, FY24’s revenue will be anchored by the MYR344m LSS4 jobs – with all eight projects targeted for completion by Dec 2023. For its own LSS4 assets, two projects are to be commissioned by 2QFY24 and one by 3QFY24. Upon completion, the projects would contribute c.MYR7-10m to PAT pa. Following its ambition to bring in more developer contracts for C&I and building its asset base, the group secured c.74.5MWp of corporate power purchase agreements (PPAs), which would provide recurring earnings.

• Robust project pipeline. Solarvest has an overall tenderbook of c.2.5GW capacity encompassing developer and EPCC contracts. While 70.6% of the tender is for domestic jobs, the group is also making progress in Taiwan with its current tender of c.516MWp capacity. Other tenders include those in the Philippines (c.126MWp), Vietnam (c.55MWp), Singapore (c.15MWp), Indonesia (5.7MWp), and Thailand (c.18MWp). It is looking to convert a few of the tenders into its FY24 orderbook. As for the Corporate Green Power Programme (CGPP), Solarvest has tendered for 467MWp of quota to replace the soon-to-be-depleted LSS4 orders and provide cover for FY25.

• Lifting of RE export ban. Management is optimistic on the recent news of Singapore’s lifting of RE export ban as the country offers a high demand market. Singapore’s higher household electricity tariff will potentially provide higher gross margin as well as incentivise RE players to explore battery energy storage system projects.

• We cut our FY23 forecast by 2% after lowering our EPCC margins, masking slightly higher earnings from LSS contributions. As such, our SOP-derived TP (Figure 1) is adjusted to MYR1.28 from MYR1.36 – based on unchanged 25x FY24F P/E (at its 3-year mean) and DCF (WACC: 5.4%) on its LSS4 solar assets. However, we see potential upside from the newly secured PPAs as we have yet to build this into our assumption pending more financing details. Our TP includes an 8% ESG premium, given its 3.4 ESG score is above the country median. Key risks: Lower- than-expected contract wins, unexpected changes in project costs, and slower progress of its overseas ventures.

Source: RHB Research - 8 Jun 2023