• MYR0.41 FV based on 14x FY26F (Jul) P/E. ES Sunlogy aims to raise MYR42m from its IPO, primarily to fund the development and construction of the Selarong Large Scale Solar Photovoltaic (LSSPV) plant. We project a 3-year earnings CAGR of 24%, driven by Malaysia's target of achieving a 70% renewable energy (RE) mix by 2050, which is expected to significantly boost solar adoption in addition to higher demand for mechanical & electrical (M&E) engineering services for buildings (residential, commercial, and industrial).
• Business overview. SUNLOGY primarily engages in the provision of M&E engineering services for electricity supply distribution systems and buildings along with the generation and sales of RE (via its Junjong LSSPV in Kedah with a total capacity of 20.8MWac). Currently, 63% of its outstanding orderbook as of 24 Dec 2024 comes from commercial and residential jobs, which have GPMs ranging between 12% and 16%.
• Expansion plans. SUNLOGY is allocating 33.6% of the IPO proceeds for the development and construction of the Selarong LSSPV plant. Meanwhile, another 21.9% of the IPO proceeds have been earmarked for general working capital purposes, including workforce expansion and payment to procure materials. By utilising these funds to meet working capital needs associated with contract works, the group will enhance its capacity to tender for projects and expand its portfolio in the EPCC and development of solar PV plants on top of its M&E services for buildings, in our view.
• Forecasts. We forecast SUNLOGY's revenue to grow at a 3-year (FY24-FY27F) CAGR of 17%, primarily driven by increasing orders from its commercial & industrial (C&I) customers - in line with the country's commitment towards energy transition. As of 24 Dec 2024, the group's orderbook stood at MYR269m with a tenderbook of MYR1bn spread across 103 bids. We have also assumed a net margin of 7% for FY25, before improving further to 7.8% in FY26 - backed by projected steady new job wins and higher contribution from its RE generation business.
• Valuation. We ascribe a 14x P/E to SUNLOGY's FY26F earnings to arrive at a FV of MYR0.41. Our target P/E is positioned at the mid-point of the 11-16x range for contractors related to residential, commercial, and industrial buildings as the majority of its orderbook still comes from this segment. The target valuation is also below the range of solar EPCC players of 22-26x to reflect the group's smaller market cap.
• Key risks: Slow replenishment of its orderbook, dependence on government policies on RE, and higher-than-expected project costs.

Source: RHB Research - 5 Feb 2025