• Keep BUY, new MYR1.72 TP (SOP) from MYR1.53, 14% upside. 9MFY24’s (Mar) core earnings of MYR24.7m came in within our expectations, driven by the recognition of Large Scale Solar 4 (LSS4) projects and recurring income from LSS4 assets. Solarvest continues to be a beneficiary of the country’s commitment towards energy transition, as reflected by its strongest quarter recorded since listing.

• Within expectations. 9MFY24 revenue of MYR395.7 (+56.8% YoY) and core profit of MYR24.7m (+71.4% YoY) came within our expectations at 76%. It exceeded Street’s at 83% of full-year forecasts. The better YoY performance was largely driven by the significantly higher revenue – driven by completion of LSS4 jobs coupled with increased electricity sales contributions from its commissioned LSS4 plants. Slightly masking earnings are higher interest expenses (+85.2% YoY) and effective tax rate (+78.2% YoY). 3QFY24’s significant margin, which improved to 25% from 3QFY23’s 16.1%, was attributable to the higher-margin electricity sales from Solarvest’s LSS4 plants, softening of panel costs, and operational efficiencies.

• All LSS4 assets coming online. In the quarter, all three of its plants – with a cumulative installed capacity of 67.3MWp – were fully commissioned. Consequently, Solarvest’s electricity sales through the solar energy segment jumped 92.4% QoQ to MYR3.4m from MYR1.8m previously. We expect to see full contributions from its assets in the next quarter, supporting the group’s income in the wake of softer earnings from its EPCC division, given the smaller percentage of utility-scale jobs remaining.

• Orderbook. As of 3QFY24, Solarvest’s outstanding orderbook stood at MYR242m vs 2QFY24’s MYR289m – this was because the group had completed seven EPCC LSS4 projects. Going forward, we believe the Corporate Green Power Programme (CGPP) contracts – in which Solarvest has the first right of refusal to a total of c.350MW (including own assets, developer contracts, and EPCC jobs) – will help in providing orderbook replenishments to the group. In the event that CGPP contracts are awarded later than expected, Solarvest has power purchase agreements (PPAs) with a cumulative capacity of c.110MWp under the Powervest programme, which could be converted into EPCC revenue.

• Forecasts and TP. We retain our forecasts as results came in line. Our SOP- derived TP is lifted to MYR1.72 as we roll forward our base year to FY25F with P/E pegged to an unchanged 30x, +1SD of its 3-year mean. The TP also includes DCF valuation (WACC: 5.4%) on LSS4 solar assets and an 8% ESG premium given the group’s 3.4 ESG score – above the 3.0 country median.

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

Source: RHB Research - 29 Feb 2024