Solarvest Holdings Berhad - Acquiring a Stake in SIW Manufacturing
Wed, 04-Dec-2024 08:12 am
by Tan Sue Wen • Apex Research

Counter

SLVEST (0215)

Target Price (RM)

1.98

Recommendation

Buy

Company Update

 

  • Acquisition details. Solarvest entered into a Share Sale Agreement (SSA) to acquire 30.0% stake in SIW Manufacturing Sdn Bhd for RM36.0m. SIW Manufacturing is a Singapore-based company principally involved in the manufacturing of waste gas abatement machines and gas system-related modules and components for the semiconductor industry. The deal is targeted to be completed upon the payment of the first tranche payment, which is scheduled by Dec 2024. The acquisition includes an Aggregated Profit Guarantee of RM14.0m for FY25F and RM16.0m for FY26F. The financing structure will be a combination of sources. Assuming 80% of the acquisition is financed through external borrowings, this is expected to increase the Group’s FY25F net gearing from 0.17x to 0.26x.

 

  • Rationale of the acquisitionThe acquisition will allow Solarvest to expand its footprint in clean energy and diversify its revenue streams. Based on SIW Manufacturing’s FY23 net profit of RM13.0m, Solarvest’s acquisition of a 30.0% stake translates into a historical P/E of 9.2x. In comparison, the profit guarantees would translate into a forward P/E of 8.6x/7.5x for FY24F/FY25F respectively. We believe the acquisition deemed to be fair, considering the strong historical financial track record of having delivered three-year CAGR of 105.3% in net profit and double-digit margins.

 

  • Earnings revision. We have raised our FY25F/FY26F earnings by +1.2%/+5.0%, assuming associate contribution of 30.0% stake from the profit guarantee of RM14.0m/RM16.0m for FY25F/FY26F respectively. 

 

  • Valuation. We maintain our BUY recommendation with a revised TP of RM1.98 (from RM1.91) based on sum-of-parts (SOP). 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. 

 

  • Risk. Reversal in solar module costs. Heavy reliance on government initiatives. Intense market competition.

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