Reservoir Link Energy (RLEB MK) - Temporary Blip

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+0.005 (1.54%)
  • Maintain BUY (TP: RM0.33). Reservoir Link Energy (RL) 1HFY24 core PATAMI of RM2.1mn was below both our and consensus’ estimate at 19% and 20% respectively. 2QFY24 core earnings declined 49% QoQ to RM0.7mn dragged by lower revenue from RE solar segment as well as lower margin in O&G segment. We cut our forecast by 19%-22% for FY24-FY26F as we take into account higher finance cost. We expect RE solar activities to be more vibrant in FY25 with the expected roll-out of CGPP projects in 2HCY24. Overall, we still think that the stock offers relatively cheaper exposure to encouraging demand for solar project. Maintain RL as a BUY with a lower TP of RM0.33 which implies 10x FY25F P/E.
  • Key highlights. Revenue declined 34% QoQ to RM44mn mainly dragged by slower RE segment which fell 39% to RM29mn. Growth in RE activities were stalled as many LSS4 projects were coming to tailend stages. However, GP margin for RE segment expanded by 500bps to 16% (1Q24: 11%) as it incurred higher cost during commencement of project in 1Q24. On O&G segment, revenue was down by 18% to RM17mn as it was affected by seasonal demand. GP margin was lower at 14% (1Q24: 19%) due to the deployment of third-party equipment during project execution.
  • Earnings Revision. We cut our forecast by 19%-22% for FY24-FY26F (Table 4) as we pencilled in higher finance cost assumption.
  • Outlook. RL orderbook stands at RM210mn (1Q24: RM175mn) underpinned by orderbook replenishment in O&G segment. Management guided that companies that participate in Corporate Green Power Programme (CGPP) projects had only done submission to participate in New Enhanced Dispatch Arrangement (NEDA) recently. Thus, the roll-out of CGPP projects may only gain traction in 2HCY24. On the other hand, the company expects to realise the listing of Founder Energy on Nasdaq by mid-CY24.

Source: BIMB Securities Research - 26 Feb 2024

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