WHILE its earnings are expected to be affected by strict lockdown measures to battle a spike in COVID-19 cases, recent share price weakness and a second Large Scale Solar 4 (LSS4) engineering, procurement, construction & commissioning (EPCC) contract win can serve as ideal catalysts for renewable energy player Solarvest Holdings Bhd.
In fact, such outlook has prompted RHB Research to upgrade Solarvest to “buy” (from “neutral” previously) albeit with an unchanged target price of RM1.32.
Yesterday (July 15), Solarvest was awarded the main EPCC works for a 20.76-megawatt (MW) LSS4 plant in Kulim (Kedah) by consortia, Energy ES Sdn Bhd. The RM87.5 mil contract brings Solarvest’s total LSS4 EPCC contract wins to RM130.4 mil to date.
“This is within our expectation as we had imputed circa RM600 mil worth of LSS4 EPCC job wins in our forecasts,” opined analysts Loo Tungwye and Lee Meng Horng in a company update.
“With the second win in less than two weeks, we expect more LSS4 EPCC contract flows in the coming months as the group continues to progress in its discussions with other shortlisted LSS4 bidders.”
On the downside, RHB Research observed that Solarvest’s share price has declined circa 24% over the past month mainly due to the high number of COVID-19 cases that have led to stricter lockdown measures in Malaysia.
“These stricter measures have slowed the overall progress billings of Solarvest’s solar EPCC projects,” noted the research house.
“While solar EPCC contract flows remain robust, the lockdown and high solar panel prices will likely continue to undermine near-term earnings.”
While the lockdown measures may result in near-term earnings weakness, RHB Research expects the current valuation of 24 times FY2023F price-to-earnings ratio (P/E) (circa 20% discount to regional peers) as attractive for investors to trade on potential positive news flow from further LSS4 and commercial & industrial contract wins in the coming months.
“Moreover, once the pandemic is under control, and the economy re-opens, Solarvest would be able to resume its EPCC work, backed by strong demand for solar energy and its robust circa RM316 mil outstanding order book,” added the research house.
The key risks for Solarvest at the moment lie in lower-than-expected contract wins and progress on its overseas ventures in Taiwan and the Philippines.
At 10.45am, Solarvest was up 4 sen or 3.57% to RM1.16 with 2.77 million shares traded, thus valuing the company at RM735 mil. – July 16, 2021
