• Keep BUY and SOP-derived MYR1.53 TP, 26% upside. Post briefing, we remain positive on Solarvest’s commitment in building multiple income streams via solar assets and further strengthening of its EPCC order replenishment for the next two years. The group is poised to solidify its position as a market leader in Malaysia's solar landscape – reflected by the capacity secured under the Corporate Green Power Programme (CGPP) – and ride the renewable energy wave.

• Diversified earnings visibility. Solarvest's EPCC orderbook stood at MYR289m, fuelled by Large Scale Solar 4’s (LSS4) MYR75m and MYR214m from residential and commercial & industrial (C&I) projects. The group has guided a potential of c.443.4MWp replenishment opportunities from the CGPP. Furthermore, aligning with its strategy to have 30% recurring income, the group has three groups of assets, including LSS4 assets (67.3MWp), CGPP assets (c.43.5MWp), and assets under the Powervest programme (c.88MWp).

• Powervest programme. The group boasts a cumulative capacity of c.110MWp under its Powervest programme, with c.88MWp secured under 15-25 years Power Purchase Agreements (PPAs). These PPAs could potentially bring an additional MYR39m pa to its topline. However, we could see the PPAs being converted into EPCC revenue in times of orderbook replenishment slowdown, eg when CGPP tenders materialise later than anticipated. Under the programme, the group has a robust project pipeline of c.600MWp.

• Manageable gearing level. Borrowings as of Sep 2023 stood at MYR122.1m, including the recent drawdown of project financing for its LSS4 assets. This, along with the MYR60.2m sukuk issuance, MYR18.4m in trade financing, and MYR2.5m in term loans, bring the group's gearing ratio to 0.97x. Excluding project financing, gearing ratio sits at 0.39x. Hence, the group is in a net cash position of MYR21.9m, given its cash and cash balances of MYR103.1m. With this cash buffer, Solarvest has more room to expand its portfolio.

• Keep buy. We maintain our forecasts and keep our SOP-derived TP at MYR1.53, based on an unchanged 30x CY24F P/E (+1SD of its 3-year mean) and DCF valuation (WACC: 5.4%) on its LSS4 solar assets. We are upbeat on the stock’s growth prospects underpinned by the potential CGPP contract flow, strong C&I pipeline, and the upcoming NETR projects. Our TP also incorporates an 8% ESG premium as Solarvest’s 3.4 ESG score is above the country median.

• Risks: Lower-than-expected contract wins, unexpected changes in project costs, and lack of progress in its Taiwan and Philippines overseas ventures.

Source: RHB Securities Research - 5 Dec 2023