UNVIEW: Strategic Acquisition Underpins Earnings Forecast, Rating Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading investment bank has reviewed the outlook following a significant acquisition, adjusting its earnings forecasts and target price while maintaining a cautious stance on the company’s stock. The company recently announced a proposed RM70 million cash acquisition of a 50MWac LSS 4 solar plant from PKNP Reneuco, a project that is currently 79% complete.
While the acquisition is expected to boost the company’s solar asset ownership from 12.1MW to 62.1MW and contribute to recurring income, the immediate enhancement to net profit is projected to be modest due to higher interest expenses associated with the financing. The investment bank views the acquisition neutrally, noting that it will marginally improve the company’s net profit by an estimated 2.2% for both FY27F and FY28F, assuming a tariff of 15 sen/kWh and nine months of contribution in FY27F. Consequently, the target price has been raised to RM0.37 per share, up from RM0.36, based on a discounted CY27F PE of 20x, which is below the industry average due to the company’s elevated gearing and lower return on equity (ROE) of 4.4%. The bank has reiterated its “Hold” recommendation for the stock.
Financial Implications and Funding
The RM70 million acquisition is planned to be funded by RM14 million in internal cash and RM56 million from bank borrowings. This funding structure is anticipated to increase the company’s net gearing significantly, from 69.9% currently to 88.8% in FY26F. The company’s balance sheet is noted as stretched due to high working capital requirements and existing borrowings from project financing, with plans to raise equity to rebalance its capital structure and improve gearing levels.
Orderbook and Future Growth
Despite the balance sheet constraints, the company continues to demonstrate strong orderbook momentum. It recently secured a 99.99MW LSS project under the LSS5+ program, expected to add RM150 million to its current orderbook. This is projected to increase the total orderbook to RM412 million by FY27F. Furthermore, the company maintains a robust tender book of RM5.8 billion, with an estimated 25% success rate potentially translating into RM1.5 billion in contract wins over the next three years.
Risk Factors
Key risks identified include continued high net gearing, a potential slowdown in orderbook replenishment, and fluctuations in solar panel prices. The investment bank emphasizes the need for a stronger balance sheet for any potential re-rating of the stock.
