SLVEST: Strong Earnings Growth Driven by Project Pipeline, Target Price Raised

Performance Review

A recent investment bank research report indicates that the company delivered a robust financial performance for the first half of fiscal year 2026 (1HFY26), with net profit exceeding analyst forecasts. This strong showing was primarily attributed to effective execution against a substantial order book, despite emerging challenges related to rising operational costs.

The company’s 1HFY26 net profit surpassed the investment bank’s expectations by 10%, aligning with broader market consensus. Revenue for the period saw a significant year-on-year increase of 74% to RM307.2 million, translating into a net profit jump of over 100% to RM34.6 million compared to 1HFY25. Quarterly performance also demonstrated momentum, with 2QFY26 revenue climbing 23% quarter-on-quarter to RM169.5 million.

The renewable energy (RE) generation division notably contributed to this growth, with its EBITDA expanding to RM7.6 million in 2QFY26, up from RM6.9 million in the preceding quarter. This improvement was largely driven by increased electricity sales volumes following the commissioning of 67.3 MWp Large Scale Solar 4 (LSS 4) projects in Selangor and Perak. Analysts have since revised their FY26F net profit forecast upwards by 10.3% and FY27F net earnings by 13.8% to reflect this positive trajectory.

Challenges and Margin Outlook

Despite the strong top-line and bottom-line growth, the report highlighted a notable dip in the EBITDA margin of the Engineering, Procurement, Construction, and Commissioning (EPCC) division. The margin decreased to 17.5% in 2QFY26 from 18.1% in 1QFY26. This contraction is primarily attributed to escalating operational expenses, particularly higher wages and increased costs of solar panels. The price of polysilicon, a key component in solar panel manufacturing, has reportedly surged by more than 30% since mid-July 2025, exerting pressure on profit margins. The report also cautions about the potential imposition of a 6% sales tax in 2026F, which could further squeeze operating margins.

Future Outlook and Investment View

The company’s future prospects are bolstered by a record high unbilled order book, currently standing at RM1.3 billion, with expectations for it to reach RM2 billion by the end of the year, primarily driven by upcoming LSS 5+ and Corporate Green Power Programme (CGPP) projects. Approximately 42% of the existing order book is allocated to LSS 5 projects, 35% to CGPP, and the remaining 23% to rooftop solar projects for various customer segments.

Despite the positive outlook and a strong market share in the solar EPCC industry, the investment bank maintained its HOLD rating on the stock, noting that its valuation, at 31x fully diluted FY27F earnings, appears expensive. However, it did revise its target price upwards to RM2.87 per share, from RM2.40 previously.