SLVEST has clinched its fourth major contract win in FY25, securing RM142m EPCC job for a 29.99MWac solar power plant in Kedah under the Corporate Green Power Programme (CGPP). This milestone brings its YTD job wins to RM627m, keeping it on track to meet our full-year estimate of RM654m. The latest contract also lifts SLVEST's outstanding order book to RM828m. We maintain our forecasts, TP of RM1.91 and OUTPERFORM call, reaffirming SLVEST as our sector pick.

SLVEST has secured a RM142m EPCC contract from SM01 Sdn Bhd, a special purpose vehicle in which SLVEST holds a 33% stake, for a large-scale solar power plant in Kuala Muda, Kedah. We believe the project is scheduled for completion by end-2025.

We view this contract win positively as it boosts its FY25 YTD job wins by 29% to RM627m (vs. our full-year assumption of RM654m). It also lifts its outstanding order book to RM686m (CGPP: 85%, C&I: 15%) which can keep it busy for at least over the next 18 months. We anticipate a gross profit margin of 14%-16% from this job.

Outlook. In the immediate term, we expect a strong influx of job opportunities driven by the 800MW CGPP with an end-2025 completion deadline and an additional 500MW quota under the NEM initiative.

Based on our estimates, we expect SLVEST to stand a strong chance to secure at least 30% of the total PV system EPCC jobs under CGPP, which we estimate at RM2.4b, translating to RM720m. Thus far, we have already seen ~RM936m contract awards under this programme announced by listed firms over the past three months.

Forecasts. We maintain our forecast as the RM654m order wins for FY25 is already been factored in, and this job win is not unexpected.

Valuations. We also maintain our TP of RM1.91 based on SoP valuation, ascribing 30x FY26F PER for its EPCC segment (in-line with the average historical 1-year forward PER of the solar EPCC sector) and DCF at a discount rate of 5.5% to 5.6% for its LSS4, CGPP, and Powervest assets (see Exhibit 1). Note that our TP reflects a 5% premium given a 4-star ESG as appraised by us (see Page 4).

Investment case. We like SLVEST for: (i) the bright outlook of the RE market in Malaysia, underpinned by the government's strong commitment towards RE, the export potential of RE and improved commercial viability of solar power projects on falling solar panel prices, (ii) its dominant market position with a market share of over 30% in the solar EPCC space, and (iii) its strong earnings visibility backed by a sizeable outstanding order and tender books, and recurring income from a growing portfolio of solar assets. Maintain OUTPERFORM.

Risks to our call include: (i) the government dials back on RE policy, (ii) influx of new players in the solar EPCC space, intensifying competition, and (iii) escalation in project costs.

Source: Kenanga Research - 25 Nov 2024