Reservoir Link Energy (RL) secured a purchase order (PO) worth RM11.4m for the supply of mounting structure for large-scale solar photovoltaic (“LSS PV”) plant development from Fabulous Sunview SB (a wholly-owned subsidiary of Sunview Group) through its 51% owned subsidiary, Founder Energy SB. It expects to deliver all the purchase order by April 2023. Despite no specific location being mentioned for the delivery of PO, our checks reveal Fabolous Sunview currently having 8 on-going LSS PV plant projects across Malaysia to be completed by 2024. Despite this being a relatively positive development for the Group as it deepens the Group’s foray into the renewable energy (RE) space, we lower our call to Underperform (from Neutral) as we see the current share price having run ahead of its fundamental valuations. Our sum-of-parts based TP is unchanged at RM0.31.

• Fabulous Sunview is one of the key LSS EPCC contractors in Malaysia. Based on our checks, Fabulous Sunview currently has 8 on going EPCC contracts across in Malaysia (Penang, Perak, Kedah, Pahang, Selangor, Labuan & 2 projects in Sabah) to be completed by 2024. Its current portfolio consists of 204MW with aggregate value of RM751.8m.

• RE segment typically carries lower margin as compared to oil and gas segment. Assuming a 7% net profit margin for the RE segment, this PO is expected to contribute about RM0.4m to RL’s bottom-line after considering minority interests of Founder Energy. This particular PO may have further downside risks however, owing to transportation cost if it has to deliver the order to multiple locations within Fabolous Sunview’s on-going EPCC projects.

• Downgrade to Underperform. While RL is building on its momentum in securing new RE contracts, we remain cautious on the short-term earnings prospects for this segment amid inflationary pressures. We lower our call to Underperform as we see the current share price having run ahead of its fundamental valuations. Our sum-of-parts TP is unchanged at RM0.31.

Source: PublicInvest Research - 27 Jan 2023