RHB initiates coverage on Solarvest with RM1.79 target price

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KUALA LUMPUR (Sept 10): RHB Research has initiated coverage on Solarvest Holdings Bhd at RM1.38 with a "buy" call and target price of RM1.79, representing a 30% upside, as the company is seen as a proxy to the growing solar industry and a beneficiary of the government’s renewable energy (RE) roadmap.

In a note today, RHB Research analysts Loo Tungwye and Lee Meng Horng wrote that the company is expected to post exponential earnings growth in the coming years, expecting a compounded annual growth rate (CAGR) of 34% from the financial year ending March 31, 2019 (FY19) to FY23.

The growth would be in line with the growing demand for solar power, to achieve the government’s targeted 20% RE mix in Malaysia.

“Under the government’s roadmap to achieve a 20% RE generation mix by 2025, Solarvest is primed to benefit from the increase in solar photovoltaic (PV) installation demand. Malaysia’s total solar power generation capacity is expected to have a six-year CAGR of 37%.

“There are various government programmes to accelerate solar energy adoption, and dwindling solar energy generation costs and the shift towards sustainability in recent years are key demand drivers,” the analysts said.

The research house said Solarvest’s strong track record has led to a slew of contract wins, with clients and project partners including many public-listed companies.

The group has an outstanding orderbook worth RM178.4 million from the commercial and industrial (C&I) segment as at 1QFY21. The analysts expect these C&I projects, along with utility-size projects, to bring exponential earnings growth of 61.9% year-on-year in FY22.

Solarvest expects to secure a total of 100 megawatts (MW) of contracts in FY21, of which 40MW is already in hand, and has tendered for more than 15 engineering, procurement, construction and commissioning (EPCC) projects for the upcoming LSS @ Mentari programme.

The group is also expanding overseas, and have so far secured two small EPCC projects in the Philippines and is finalising its partner selection in Taiwan.

“Moreover, Solarvest is planning to expand its solar farm investment and build a sustainable recurring income base via participating in LSS @ Mentari as an asset owner. We have yet to factor these into our assumptions, as we prefer to remain conservative in our outlook,” said the analysts.

At the time of writing, Solarvest rose one sen or 0.72% to RM1.39, giving a market capitalisation of RM542.97 million.

Surin Murugiah