Solarvest Holdings Berhad - Earnings moderated, but margins expanded
Tue, 26-Nov-2024 08:22 am
by Tan Sue Wen • Apex Research

Counter

SLVEST (0215)

Target Price (RM)

1.91

Recommendation

Buy

Summary

  • Solarvest’s 6MFY25 core net profit of RM17.1m deemed to meet expectations, despite accounting for only 35.5% of our forecast of RM48.2m and 36.7% of the consensus FY25F earnings forecast of RM46.7m. 

  • We anticipate stronger quarters ahead, with earnings growth emanating from commencement of CGPP projects from 3QFY25 onwards. 

  • Maintained our BUY recommendation with an unchanged target price of RM1.91 based on the Sum-of-Parts (SOP) valuation.

     

Results Review

  • Within expectations. Solarvest’s 6MFY25 core net profit (CNP) of RM17.1m accounted for only 35.5% of our CNP forecast of RM48.2m and 36.7% of consensus FY25F CNP forecast of RM46.7m. We deemed the results to be within expectations, as we anticipate stronger performance in the coming quarters, with earnings emanating from commencement of CGPP projects from 3QFY25 onwards. 

 

  • QoQ. 2QFY25 CNP rose 11.0% qoq to RM9.0m, in tandem with a 43.0% qoq increase in revenue. The stronger bottom line was primarily driven by growth in the EPCC segment (PBT +55.6% qoq), supported by commencement of some large-scale projects under CGPP. PBT margin improved 0.5%-pts, reflecting a more favorable project mix, with higher proportion of higher-margin C&I projects.

 

  • YoY/YTD. CNP rose by 22.8% yoy to RM17.1m, primarily driven by: (i) higher contributions from new LSS4 assets in the power supply division (+68.5% yoy, +163.5% YTD), (ii) cost savings from lower solar modules costs (-41.2% yoy to 0.17 sen/w as of Sept 24), and (iii) the tail-end completion of LSS4 projects which yields lower margins. As a result, the Group’s 2QFY25 CNP margin improved to 8.7% from 5.2% in 2QFY24.

 

  • Outlook. Over the near term, we expect the Group to secure additional orders from CGPP projects, with an estimated orderbook replenishment of RM750.0m (YTD: RM359.3m). This is likely to be followed by the 2GW LSS5 projects, with shortlisted winners expected to be announced soon. Together with the Government’s consistent rollout of ~2.2GW/pa and a robust overseas project pipeline >2GW, solidifies the outlook for future order book replenishment. Currently Solarvest’s unbilled order book stands at RM961.0m, equivalent to 1.9x its FY24 revenue of RM497.0m.

 

  • In terms of cost, China’s recent announcement to adjust or cancel export tax rebates for various products, including solar PV products (reducing rebates from 13% to 9%), raises concerns about potential increases in overseas prices. We await further clarification in upcoming post-results briefing.

 

  • Earnings revision. No change to our earnings forecasts.

  • Valuation. Maintain BUY recommendation and TP of RM1.91, based on Sum-of-Parts (SOP) valuation. We believe Solarvest is well-positioned to benefit from government RE initiatives, its unique in-house solar financing, and its status as Malaysia’s largest solar EPCC player.        

                                      

  • Risks. Escalation in solar module costs. Heavy reliance on government initiatives. Intense market competition.

     

  • Solar module price trend

  • As of 18th Nov, solar module prices experienced a further decline, dropping to USD 0.09/watt from USD 0.10/watt in the previous month.

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