• Maintain BUY and SOP-derived MYR1.53 TP, 23% upside. 1HFY24’s (Mar) core profit of MYR14.6m was within our expectations, driven by the recognition of the Large Scale Solar 4 (LSS4) projects as well as maiden contribution of its LSS4 assets. Solarvest remains as a key beneficiary of Malaysia’s robust demand for solar energy, leveraging on its strong track record. The strong project pipeline, on top of its existing orderbook and growing contribution from its LSS4 plant, should continue to support growth.

• Within expectations. 1HFY24 revenue of MYR283.3 (+87.8% YoY) and core profit of MYR14.6m (+62.1% YoY) came in at 45% and 49% of ours and consensus full-year forecasts. The better YoY performance was largely driven by the significantly higher revenue on account of higher LSS4 progress coupled with higher electricity sales contribution from its first commissioned LSS4 plant. This is slightly offset by the higher interest expense (+82.7% YoY) on the back of increased gearing from 0.1x to 1.0x and effective tax rate (+49.1% YoY).

• Contribution from LSS4 assets. In the quarter, the group’s sale of electricity through solar energy more than doubled QoQ to MYR1.8m from MYR0.7m as one of its three LSS4 plants with an installed capacity of 29.6 MWp was successfully commissioned. The remaining two LSS4 plants with installed capacity of 37.7 MWp are scheduled to be commissioned by 2023 and thus should see an uptick in the coming quarters’ earnings. Upon full commission, the three assets are projected to bring in MYR7-10m pa.

• Orderbook. As of Sep 2023, the group’s outstanding orderbook stood at MYR289m (1QFY24: MYR457m), with the completion of more LSS projects. We expect the imminent Corporate Green Power Programme (CGPP) contract flows to replenish the group’s orderbook. Note that Solarvest has the first right of refusal to a total of c.350MW – encompassing its own assets, developer contracts, and EPCC jobs. The contracts are likely to roll out by end-2023 or early 2024. Other than the CGPP jobs, we could also expect tenders for projects under the National Energy Transition Roadmap or NETR to come online eg TNB’s 30MW floating solar PV plant at Chenderoh Reservoir.

• Forecasts and TP. We maintain our forecasts and expect earnings to pick up in the subsequent quarters, coming from its three solar assets. We keep our SOP-derived TP at MYR1.53, based on an unchanged 30x CY24F P/E (+1SD of its 3-year mean) and DCF valuation (WACC: 5.4%) on its LSS4 solar assets. Our TP includes an 8% ESG premium – as Solarvest’s 3.4 ESG score is above the country median.

• Risks include lower-than-expected contract wins, unexpected changes in project costs, and a lack of progress in its overseas ventures, particularly Taiwan and the Philippines.

Source: RHB Securities Research - 30 Nov 2023