SUNVIEW: Earnings Plunge on High Tax Expense, Analysts Maintain Cautious Stance
| Key Information Summary | |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 |
| Last Traded | RM0.20 |
| Recommendation | |
A recent investment bank research report indicates a significant decline in the financial performance of a key player in the solar energy sector. The company’s net profit plummeted by a striking 92% quarter-on-quarter to just RM0.1 million in the final quarter of its fiscal year 2025, falling 13% below analyst expectations.
Performance Review
The sharp drop in earnings was primarily attributed to an exceptionally high tax expense, which nearly matched the pre-tax profit. This was largely due to non-tax deductible fees incurred in securing banking facilities, contributing to an effective tax rate of 40%, significantly higher than the anticipated 30%. In light of these higher financing costs and effective tax rates, analysts have revised down their net profit forecasts for FY26F and FY27F by 13% and 11% respectively. Financing costs are expected to increase further with the continued drawdown of facilities.
Despite the profit setback, the company did show some operational improvements. The Solar EPCC (Engineering, Procurement, Construction, and Commissioning) EBIT margin notably improved to 12.3% in FY25, up from 7.4% in FY24. This improvement was largely driven by a significant reduction in solar panel costs, which dropped to US$0.08/kWh from over US$0.20/kWh in 2022. Operating cash flows also improved, registering a deficit of RM25.8 million in FY25 compared to RM72.5 million in FY24, primarily due to a strategic build-up in contract liabilities.
Financial Health and Challenges
The report highlighted concerns regarding the company’s financial health, noting a stretched balance sheet. Net gearing escalated to 69.9% as of end-September 2025, a substantial increase from 41.6% in the prior year. This trend is expected to continue as the company secures more EPCC contracts and solar assets. The group’s net profit growth is anticipated to be constrained by elevated interest and tax expenses, alongside a relatively low return on equity (ROE) of 4.9%. Management is reportedly planning to raise equity to rebalance its capital structure and improve gearing levels.
Future Outlook and Order Book
Looking ahead, the company’s unbilled order book stood at RM173.8 million as of end-September 2025. The company is actively pursuing new opportunities, with plans to bid for RM5.8 billion worth of solar EPCC jobs. Assuming a 25% success rate, this could translate to approximately RM470 million in new job wins for 2026F. Recently, the company secured a 99.99MW LSS project under the LSS5+ program, which is projected to add RM150 million to its current order book, with the total order book expected to reach RM412 million in FY27F.
Analyst’s View
The investment bank maintained its HOLD recommendation on the company, while lowering its target price to RM0.36 per share from the previous RM0.40. This revised target price is based on a FY27F Price-to-Earnings (PE) ratio of 20x, which is a discount compared to the simple average PE of 22x for solar EPCC peers. The discount reflects the company’s high net gearing, limited financial flexibility, and low ROE. Key risks identified include continued high net gearing, a potential slowdown in order book replenishment, and an increase in solar panel prices.
