• Maintain BUY, with a higher SOP-derived MYR1.46 TP from MYR1.28, 12% upside. Following the unveiling of the National Energy Transition Roadmap (NETR), we believe Solarvest is well positioned to capitalise on the Government’s aggressive effort to increase its renewable energy (RE) capacity, in order to reach its ambitious target of 70% RE mix by 2050.

• Specialised RE zone. One of the ten flagship catalyst projects for the NETR is an RE zone which includes an integrated RE zone championed by Khazanah Nasional. The integrated development should span across the entire energy supply chain. Another RE zone designated will be that for solar parks, co-developed by Tenaga Nasional. Overall, there will be five solar parks in several states, with each site having 100MW capacity. Furthermore, Sime Darby Property is looking to construct 4.5MW solar capacity across its 450 homes in the City of Elmina and Bandar Bukit Raja. These could potentially be worth up to MYR10bn of EPCC jobs available in the market for the next couple of years. Against this backdrop, we see potential upside to Solarvest’s orderbook (c.MYR550m as at end of Mar) in the coming years.

• Regional venture. Apart from the domestic growth the group is also tendering for regional projects. This encompasses of its capacity tenders in Taiwan of c.516 Megawatt peaks (MWp) as well as in the Philippines (c.126MWp), Vietnam (c.55MWp), Singapore (c.15MWp), Indonesia (5.7MWp), and Thailand (c.18MWp). The group’s tenderbook, prior to the NETR stood at c.2.5GW.

• Maintain BUY. We increase our FY25F-26F (Mar) earnings by 13.6-14.7% on a higher orderbook assumption, given the abundance of projects in the pipeline which should benefit Solarvest. We arrive at a new SOP-derived TP (Figure 1) of MYR1.46 from MYR1.28 as we: i) Roll forward our valuation base year to 2024, ii) increase earnings estimates, and iii) ascribe a higher target P/E of 30x (1SD above its 3-year mean) from 25x, given the re-rating of the renewable energy sector driven by upcoming contract flows from the recently-introduced solar capacity of c.4GW. Our TP also includes an 8% ESG premium given Solarvest’s 3.4 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 - 28 Jul 2023