SLVEST, en route for a listing at ACE Market tomorrow, is a pure solar PV player which is involved in turnkey EPCC services for residential, commercial and industry properties and LSS plants, as well as being an owner of a 1MW solar PV plant in Pokok Sena, Kedah. Earnings had grown at >20% p.a. in the past and is expect to chart similar growth in the future given the rapid growth in the solar PV industry on the back of government’s support. It is NOT RATED and fairly valued at RM0.43. A pure solar PV player. Solarvest Holdings Bhd (SLVEST) is a fullfledged EPCC service provider in the solar PV industry. It is capable of providing turnkey end-to-end services from initial consultancy to site surveys, feasibility studies, application to authorities, systems design, construction, commissioning, as well as operations and maintenance of solar PV systems. It has track record in the installation of solar PV system for residential and commercial and industrial properties from Feed-in Tariff (FiT) mechanism to the current Net Energy Metering (NEM) mechanism and Large Scale Solar (LSS) PV. To-date, it has installed a total capacity of 231.97MWp. Once listed, it will be the only “pure solar PV” player in the local bourse.

Renewable energy a hot sector. With the government’s quest for greener energy with targeted renewal energy (RE) generation mix to 20% by 2025, demand for solar PV also grew rapidly which saw the installed capacity jumping 38% in 2018. Growth for 2019-2020 will be supported by the roll-out of solar plant project under the LSSPV program and NEM program. The total solar PV installed capacity is expected to grow at 50% CAGR to 3,322MWp by 2023 from 438MWp in 2018. Therefore, it bodes well for industry player like SLVEST. In addition, SLVEST is looking for expansion into the RE growing markets in Vietnam and Taiwan in the near future.

Earnings set to grow >20% p.a. in the next two years. SLVEST had enjoyed good earnings growth in the past two years where net profit rose 27% in FY18 and 35% in FY19m to RM11.1m, which was on the back of rapidly growing demand for solar PV. However, profit margin had compressed from close to 20% at operating level to slightly less than 9% in FY19 owing to the shift to LSS project from residential, commercial and industrial sub-segment as the former fetches lower margins. Going forth, we project SLVEST to register >20% annual earnings growth for the next two years on the back of order-book of RM184.5m. Nonetheless, we expect a slight drop in operating margin to 8.2% in FY20-FY21 from 8.9% in FY19

NOT RATED, fairly valued at RM0.43. At IPO price of RM0.35 which is valued at historical FY19 PER of 12.3x, it is fairly within the range of Utility Sector’s valuation of 13x. However, for a small company seeking listing, the offer is not attractive enough. We believe the stock should be valued at prospective FY21 PER of 10x, which is similar to Utilities EPCC contractor PESTECH’s (OP; TP: RM1.75) current price valuation of 9.8x PER. As such, SLVEST is fairly valued at RM0.43. It is a NOT RATED.

Source: Kenanga Research - 25 Nov 2019