• Solarvest is acquiring a 30% equity stake in Kee Ming Electrical for RM15.3m, allowing it to unlock new business opportunities while enhancing cost efficiency and operation synergies for Solarvest's solar EPCC projects
• This acquisition is expected to be earnings accretive, lifting FY26-27E earnings by 3%
• No changes to our earnings forecast for now. Maintain BUY rating with unchanged SOP-derived target price of RM2.00

Acquiring a small 30% stake in a M&E company

Solarvest proposed to acquire 30% equity stake in Kee Ming Electrical for RM15.3m in an all-cash deal. Kee Ming Electrical specializes in mechanical and electrical engineering for residential, utilities, and industrial projects. The acquisition is slated to be completed in 1QCY25.

Reasonable acquisition price of 7.3x FY26E PE

This acquisition allows Solarvest to streamline its operations, which have historically relied on outsourcing M&E work to external contractors for its interconnection facilities, and now enables the subcontracting of these tasks to Kee Ming Electrical. The acquisition includes a cumulative RM20m profit guarantee over 3 years, with RM6m to be recognized in FY25 and the remaining RM14m spread across FY26-27. We view the deal as earnings accretive and priced at an undemanding 7.3x FY26E PER, a discount to Solarvest's PER of 22x. We expect this acquisition to lift Solarvest's FY26-27E earnings by 3%. Sitting on a gross cash balance of RM130m as of 2QFY25, Solarvest would be able to fund the acquisition comfortably. Post-acquisition, we estimate the net gearing level to increase to 0.22x from the current 0.17x.

Maintain BUY with TP of RM2.00

We make no changes to our earnings forecast, pending the finalization of the deal. We reiterate our BUY rating with an unchanged SOP-derived target price of RM2.00, implying a forward 26x PE multiple based on fully diluted FY26E EPS of 7.6sen. We like Solarvest as a dominant player in the solar renewable energy space and believe it will benefit from the nation's RE agenda. Key downside risks include government RE policy changes, project execution delays, intense market competition, and volatility in solar module prices.

Source: Philip Capital Research - 28 Jan 2025