SOLARVEST Holdings Bhd is a no pushover despite the expiry of tax exemption for its subsidiaries.
Against the backdrop of robust demand for solar energy, Solarvest will continue to benefit from a growing flow of contracts, according to RHB Research.
Moreover, the research house opined that the company’s relatively higher valuation compared to other energy-related players is justified on grounds of its superior return on equity of 26% and higher FY2022F (March) earnings growth of 63% as opposed to its peer average of 20%.
“Its potential transfer to the Main Board, and solar farm investments could be the next re-rating catalysts,” wrote analysts Loo Tungwye and Lee Meng Horng in a company update.
Recall that Solarvest’s subsidiaries – Powertrack Sdn Bhd (operation and maintenance of solar photovoltaic [PV] systems), Solarvest Energy Sdn Bhd and Solarvest SR Sdn Bhd (engineering, procurement, construction and commissioning [EPCC] services) were granted a full tax exemption by the Malaysian Investment Development Authority from 2016 to 2020 on service income derived from generation of renewable energy.
Premised on the fact that Solarvest’s subsidiaries will be subjected to statutory tax rate going forward, RHB Research has trimmed the company’s FY2021-2023F earnings by 12.8-13.9%.
“(But) the industry outlook remains upbeat as demand for solar energy is growing substantially,” projected Loo and Lee.
“We understand that EPCC contracts secured to date in FY2021 (70-80MW) from the commercial and industrial (C&I) segment are on track to meet Solarvest’s FY2021F contract target of 100MW.”
Given the expectation of Large Scale Solar 4 (LSS4) news flow in 4Q 2020, RHB Research expects EPCC jobs for the industry to be abundant moving into 2021.
“Solarvest is well-positioned to capitalise on these opportunities, while further contract wins should solidify its earnings visibility,” reckoned Loo and Lee.
Post its earnings estimates revision, RHB Research reduced Solarvest’s target price to RM1.55 (previously RM1.79) but maintained its “buy” rating.
“We still like the stock as a proxy to the growing solar industry, driven by favourable government policies and falling solar energy generation costs,” Loo and Lee pointed out.
“Its overseas ventures in the Philippines and Taiwan, and potential expansion into solar farm investments via participating in LSS@MEnTARI as an asset owner could provide further upsides to our forecast.”
On the hindsight, key risks associated with Solarvest include changing government policies on renewable energy, delays in project delivery, dependence on the client’s ability to obtain relevant approvals and financing for their solar PV projects, competition and cost overruns.
At 9.15am, Solarvest was up 3 sen or 2.56% at RM1.20 with 20,100 shares traded, hence giving the company a market capitalisation of RM469 mil. – Nov 3, 2020
