KUALA LUMPUR (May 9): Affin Hwang Investment Bank on Monday (May 9) initiated coverage on Samaiden Group Bhd with a "buy" call and RM1.64 target price, as it foresees strong earnings growth prospects for the firm.

The research house's analyst Loong Chee Wei said in a note that he believes Samaiden is a major beneficiary of Malaysia’s target to increase renewable energy (RE) generation capacity to contribute 31% of total installed capacity by 2025 and 40% by 2035.

“Its FY23 (ended June 30, 2023) core price-earnings ratio (PER) of 12 times is attractive considering two-year core earnings per share (EPS) compound annual growth rate (CAGR) of 66% in FY23 to FY24,” he said.

According to him, Samaiden has increased its order book by 13-fold to RM410 million over the past two years after securing several Large Scale Solar Phase 4 (LSS4) projects and that will drive a strong core EPS CAGR of 66% in FY23 to FY24.

Samaiden secured RM299.6 million new contracts in the nine months ended March 31, 2021 (9MFY21), expanding its order book to RM410 million as at March 31, 2022 from RM174 million at end-FY21.

“Its current order book is equivalent to 7.7 times of FY21 revenue with most projects to be completed by end-2023. Good prospects to expand its order book further with RM200 million to RM300 million tenders submitted,” Loong said.

He is projecting strong 43% year-on-year growth in core net profit to RM10.4 million (excluding private placement exercise cost of RM500,000) for Samaiden in FY22.

He also expects Samaiden earnings growth momentum to remain strong, driven by its expanding order book in FY22 to FY24.

Its core net profit margin is expected to remain stable at 8.9% in FY22 to FY24, he said.

He also noted Samaiden's strong financial position will support its plan to invest in new RE assets such as biogas plants and solar photovoltaic (PV) systems for commercial and industrial (C&I) customers.

Its high net cash position also provides good asset backing for the current share price, ie equivalent to about 17% of current market capitalisation, he added.

Samaiden had net cash of RM24.9 million as at Dec 31, 2021 and he estimated its net cash has increased to about RM46.2 million or 20 sen per share following the completion of the second tranche of the private placement exercise.

According to him, Samaiden is developing a 1.2 megawatt (MW) biogas power plant under a build-own-operate basis in Bachok, Kelantan, with estimated capital expenditure (capex) of RM23 million to RM24 million.

It has secured a 21-year concession to sell electricity generated to Malaysia’s power grid on completion of the plant by November 2023. It also signed a power purchase agreement (PPA) with Sunway Nexis to install a 531 kilowatt peak (kWp) rooftop solar PV system by June 2022 and supply electricity to the latter’s commercial buildings for 20 years.

“These projects will generate recurring earnings in the long run,” said Loong.

At the time of writing, Samaiden was unchanged at RM1.14, valuing the group at RM263.34 million. Year to date, the counter has risen 5.56%.