• Maintain BUY, new MYR1.05 SOP-based TP from MYR1.06, 14% upside. 9MFY23 (Jun) earnings missed expectations on weaker margins amidst ongoing Large-Scale Solar 4 (LSS4) projects. Nonetheless, we believe Samaiden is well-positioned to benefit from continued efforts by the Government to achieve its sustainability targets, with more renewable energy (RE) initiatives being rolled out. 

• Missed expectations. At 37% and 46% of our and Street’s full-year estimates, 9MFY23 core earnings of MYR6.9m (-22% YoY) were below expectations due to margin compression from ongoing projects. Samaiden’s 3QFY23 core earnings declined to MYR1.9m (-27% QoQ, -58% YoY) on a weaker-than-expected GP margin of 14% from the current large-scale solar (LSS) projects, coupled with increased administrative expenses (+36% QoQ, +57% YoY) to cater for the group’s continued business expansions. For the same reason, 9MFY23 core earnings fell 22% YoY to MYR6.9m.

• Outlook. As of 3QFY23, Samaiden’s orderbook fell 9% to MYR245.6m (c.23% from LSS projects) from 2QFY23’s MYR269.5m, as some orders were recognised for the quarter. In terms of future prospects, the Government recently allocated an additional 630MW RE quota capacity covering 180MW for small hydro, biogas, and biomass projects, 200MW for the Corporate Green Power Programme (CGPP), and 250MW for the Net Energy Metering (NEM) programme, which are set to provide ample replenishment for the group’s orderbook. The lifting of the ban on energy exports also provides further opportunities to widen its client base.

• We cut FY23F-25F earnings by 47-10% after imputing lower margins as more LSS projects are expected to be recognised in the coming quarters, as well as to account for higher administrative expenses.

• New SOP-derived MYR1.05 TP after trimming our earnings and ascribing 20x FY24F P/E from 16x previously, given its recent transfer to the main market. The 20x P/E is at a 20% discount to its larger peer Solarvest’s (SOLAR MK, BUY, TP: MYR1.34) c.25x, as the latter has won a few asset contracts for LSS4. Our TP also includes a 6% ESG premium, based on a revised ESG score of 3.3. Our investment thesis on the stock remains intact as we believe it is poised to benefit from the upcoming CGPP among other initiatives, and further supported by moderating panel prices. Downside risks: Discontinuation of solar incentives, competition risks, and higher-than- expected project costs.

• ESG framework update. As there is now greater focus on the E pillar due to critical climate change issues, we tweaked our ESG weightage. We assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. See our 2 May thematic research note Envisioning a Better Future.

Source: RHB Research - 25 May 2023