SOLARVEST HOLDINGS
(SOLAR MK, SOLA.KL)
Margin risk from higher cost of solar panels
Gan Huey Ling
gan-huey-ling@ambankbank.com
03-2036 2305
(Maintained)
| Price | RM2.38 |
|---|---|
| Target Price | RM2.12 |
| 52-week High/Low | RM2.55/RM1.44 |
Key Changes
| Target Price | 0 |
| EPS | 0 |
| YE to Mar | FY25 | FY26F | FY27F | FY28F |
|---|---|---|---|---|
| Revenue (RM mil) | 536.8 | 633.0 | 775.3 | 847.0 |
| Core net profit (RM mil) | 51.9 | 63.6 | 77.8 | 85.3 |
| FD Core EPS (sen) | 6.6 | 7.9 | 9.6 | 10.5 |
| FD Core EPS growth (%) | 51.1 | 22.4 | 22.4 | 9.6 |
| Consensus Net Profit (RM mil) | 70.5 | 80.3 | 90.0 | |
| DPS (sen) | 0.0 | 0.0 | 0.0 | 0.0 |
| FD PE (x) | 36.2 | 30.0 | 24.7 | 22.7 |
| EV/EBITDA (x) | 24.7 | 22.0 | 19.3 | 17.4 |
| Div yield (%) | 0.0 | 0.0 | 0.0 | 0.0 |
| ROE (%) | 17.7 | 16.1 | 16.7 | 15.6 |
| Net Gearing (%) | 55.6 | 54.1 | 52.4 | 46.6 |
Investment Highlights
- Solarvest Holdings’ net profit climbed by two-fold YoY to RM15.9mil in 1QFY26. Recall that 1QFY25 was weak due to the completion of LSS 4 projects. Comparing 1QFY26 against 4QFY25 however, net profit slid by 22.7% as new projects have not commenced while project completion was accelerated in 4QFY25. Going forward, EBITDA margin of the EPCC division may be squeezed by the rising cost of solar panels and the sales and service tax on sub-construction services. The price of polysilicon has risen by 30% since the middle of July as China is expected to clamp down on the production capacity of solar panel producers. We maintain HOLD on Solarvest as its FY27F fully diluted PE is rich at 24.7x.
- HOLD with a higher TP of RM2.12/share vs. RM1.91/share originally. Our TP of RM2.12/share is based on a CY26F PE of 23x, which is the five-year average.
- Solarvest’s 1QFY26 net profit of RM15.9mil was 5% above our forecast but within consensus. The discrepancy was due to higher-than-expected earnings from the renewable energy unit i.e. sale of electricity to customers. We have raised Solarvest’s FY26F net profit by 5.1% to account for this. We have also increased the group’s FY27F net earnings by 15.9% to account for a stronger order book. Solarvest is expected to bid for 7,200MW worth of solar jobs this year. Out of these, about 82% are projects in Malaysia while the balance are overseas jobs.
- Earnings to be driven by LSS 5 and CGPP (corporate green power programme) projects. Out of Solarvest’s unbilled order book of RM1.2bil as at end-March 2025, 40.6% were in respect of LSS 5 projects, 39.1% were CGPP projects and the balance 20.3% were rooftop solar projects from residential, commercial and industrial customers.
- EBITDA of the EPCC division surged by more than two-fold YoY to RM22.5mil in 1QFY25. This was mainly due to recognition of earnings for the CGPP projects. EBITDA margin slipped to 12.1% in 1QFY26 from 12.9% in 1QFY25.
Stock and Financial Data
| Shares Outstanding (million) | 725.2 |
| Market Cap (RMmil) | 1,726.0 |
| Book Value (RM/Share) | 0.53 |
| P/BV (X) | 4.5 |
| ROE (%) | 17.7 |
| Net Gearing (%) | 55.3 |
Major Shareholders
- Atlantic Blue Holdings (20.2%)
- LTH (3.3%)
| Free Float | 78.4 |
| Avg Daily Value (RMmil) | 8.1 |
Price performance
| 3mth | 6mth | 12mth | |
|---|---|---|---|
| Absolute (%) | +0.8 | +44.1 | +62.2 |
| Relative (%) | +44.6 | +48.2 | +65.8 |
Note: The original document included a chart illustrating price performance. This chart has been omitted as per instructions.
Company profile
Solarvest is involved in solar EPCC activities and sale of electricity.
About 75% of Solarvest’s FY25 EBIT came from the solar EPCC division while another 20% came from the sale of electricity unit. O&M (Operations and maintenance) and investment holding division accounted for the balance 5% of EBIT.
Solarvest’s solar EPCC customers include corporates such as LBS Bina and Petronas. The group sells electricity to Tenaga Nasional (TNB) from its LSS (large scale solar) assets.
Solarvest’s operations are mainly in Malaysia. The group also has presence in Brunei, the Philippines and Taiwan.
Solarvest’s competitive advantage lies in its established track record and size. Due to its proven track record in completing and delivering projects on time, the group’s chances of securing solar EPCC projects are positive.
Investment thesis and catalysts
We have a HOLD on Solarvest as its FY27F fully diluted PE of 24.7x is expensive.
Share price catalysts are stronger-than-expected earnings and award of EPCC projects.
Valuation methodology
We applied a fully diluted CY26F PE of 23x to arrive at Solarvest’s target price of RM2.12. The PE of 23x is the average in the past five years.
Risk factors
As Solarvest depends on the Government’s RE schemes such as LSS and CGPP to secure projects, the group would be affected if the government no longer introduces such initiatives.
Another key risk is a rise in the cost of solar panels as this accounts for more than 70% of production costs.
EXHIBIT 1: VALUATIONS
| Target PE (x) | 23 |
| CY26F fully diluted EPS | 9.2 (from 8.3 sen) |
| ESG premium | |
| 12-month target price | 2.12 (from RM1.91) |
EXHIBIT 2: EARNINGS SUMMARY
| YoY | QoQ | |||||
|---|---|---|---|---|---|---|
| 1QFY25 | 1QFY26 | 4QFY25 | 1QFY26 | |||
| Revenue | 72.7 | 137.7 | 89.6% | 224.9 | 137.7 | -38.7% |
| Cost of sales | (48.9) | (97.3) | 98.8% | (168.1) | (97.3) | -42.1% |
| Gross profit | 23.7 | 40.5 | 56.8 | 40.5 | ||
| Other income | 0.8 | 0.9 | 2.7 | 0.9 | ||
| Admin expenses | (10.1) | (14.6) | (28.6) | (14.6) | ||
| Sales and distribution expenses | (0.6) | (1.3) | (1.2) | (1.3) | ||
| EBIT | 13.8 | 25.4 | 84.3% | 29.6 | 25.4 | -14.1% |
| Finance costs | (2.5) | (4.0) | (4.3) | (4.0) | ||
| Share of profits in associate | (0.0) | 0.7 | 2.6 | 0.7 | ||
| Pre-tax profit | 11.3 | 22.1 | 95.9% | 27.9 | 22.1 | -21.0% |
| Taxation | (2.9) | (5.8) | (7.8) | (5.8) | ||
| Minority interest | (0.5) | (0.4) | 0.4 | (0.4) | ||
| Net profit | 7.8 | 15.9 | >100% | 20.5 | 15.9 | -22.7% |
| EPS | 1.2 | 2.1 | 2.8 | 2.1 | ||
| FD EPS | 1.0 | 1.9 | 2.5 | 1.9 | ||
| Gross DPS | ||||||
| Effect tax rate | 25.9% | 26.4% | 27.8% | 26.4% | ||
| GP margin | 32.6% | 29.4% | 25.3% | 29.4% | ||
Source: Bursa Announcement
EXHIBIT 3: CHANGE IN EARNINGS
| RMmil | FY26F | FY27F | FY28F | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Old | New | % | Old | New | % | Old | New | % | |
| Revenue | 630.7 | 633 | 0.4 | 715.8 | 775.3 | 8.3 | 794.6 | 847 | 6.6 |
| Net earnings | 60.5 | 63.6 | 5.1 | 67.1 | 77.8 | 15.9 | 75.1 | 85.3 | 13.6 |
EXHIBIT 4: ESG MATRIX
| Assessment | Parameters | Weightage | Rating | Rationale | ||||
|---|---|---|---|---|---|---|---|---|
| 1 | GHG emissions | Net zero by 2050F | 25% | * | * | * | * | GHG emissions increased by 34% to 1,690.1 tCO2e in FY25 |
| 2 | Exposure to renewables | More than 20% of generation mix or capacity | 25% | * | * | * | * | Solar EPCC and asset player |
| 3 | Contribution of coal to earnings | Less than 20% | 25% | * | * | * | * | Zero coal exposure |
| 4 | Electricity consumption | Electricity consumption | 25% | * | * | * | * | 332,844 kWh in FY25 vs. 281,377 kWh in FY24 |
| Weighted score for environmental assessment | 100% | * | * | * | * | |||
| 1 | Worker’s welfare | Learning and development hours | 33% | * | * | * | * | Average training hours of 34 for men (FY24: 24) and 17 for women (FY24: 16) in FY25 |
| 2 | Customer satisfaction rate | Customer satisfaction rate of 90% | 33% | * | * | * | * | Customer satisfaction rate of 92.6% in FY25 vs. 86% in FY24 |
| 3 | Staff turnover rate | % turnover rate | 33% | * | * | * | * | Rose to 17% in FY25 from 16% in FY24 |
| Weighted score for social assessment | 100% | * | * | * | * | |||
| 1 | Related party transactions | Value of RPTs | 40% | * | * | * | * | RM231.1mil in FY25 vs. RM2.4mil in FY24, comprising mainly transactions with joint ventures |
| 2 | Women in workforce | % in workforce | 30% | * | * | * | * | 33% of workforce were women in FY25 (FY24: 32%) |
| 3 | Remuneration to directors | Total value of remuneration or % of salary costs | 30% | * | * | * | * | RM4.1mil in FY25 vs. RM4.4mil in FY24 |
| Weighted score for governance assessment | 100% | * | * | * | * | |||
| Environmental score | 50% | * | * | * | * | |||
| Social score | 30% | * | * | * | * | |||
| Governance score | 20% | * | * | * | * | |||
| Overall ESG Score | 100% | * | * | * | * | |||
Source: AmInvestment Bank
EXHIBIT 5: FINANCIAL DATA
Income Statement (RMmil, YE 31 Mar)
| FY24 | FY25 | FY26F | FY27F | FY28F | |
|---|---|---|---|---|---|
| Revenue | 497.0 | 536.8 | 633.0 | 775.3 | 847.0 |
| EBITDA | 59.7 | 91.5 | 111.1 | 132.5 | 147.7 |
| Depreciation/Amortisation | (7.5) | (13.3) | (15.7) | (16.8) | (21.9) |
| Operating income (EBIT) | 52.3 | 78.1 | 95.4 | 115.8 | 125.8 |
| Other income & associates | 2.8 | 8.1 | 6.0 | 7.0 | 7.7 |
| Net interest | (7.9) | (12.1) | (12.2) | (12.4) | (12.5) |
| Exceptional items | |||||
| Pretax profit | 47.2 | 74.2 | 89.2 | 110.4 | 121.0 |
| Taxation | (13.1) | (20.8) | (24.1) | (30.9) | (33.9) |
| Minorities/pref dividends | (1.4) | (1.4) | (1.5) | (1.7) | (1.9) |
| Net profit | 32.6 | 51.9 | 63.6 | 77.8 | 85.3 |
Balance Sheet (RMmil, YE 31 Mar)
| FY24 | FY25 | FY26F | FY27F | FY28F | |
|---|---|---|---|---|---|
| Fixed assets | 215.7 | 273.1 | 327.4 | 403.7 | 481.8 |
| Intangible assets | 0.4 | ||||
| Other long-term assets | 7.8 | 79.0 | 73.1 | 73.1 | 73.1 |
| Total non-current assets | 223.5 | 352.6 | 400.5 | 476.8 | 554.9 |
| Cash & equivalent | 112.9 | 138.1 | 136.4 | 134.0 | 159.3 |
| Stock | 13.6 | 17.4 | 29.5 | 36.1 | 39.5 |
| Trade debtors | 83.9 | 250.1 | 312.2 | 382.4 | 417.7 |
| Other current assets | 86.5 | 269.6 | 269.6 | 269.6 | 269.6 |
| Total current assets | 296.9 | 675.2 | 747.6 | 822.0 | 886.1 |
| Trade creditors | 62.2 | 153.6 | 183.2 | 224.9 | 245.9 |
| Short-term borrowings | 9.5 | 142.5 | 142.5 | 142.5 | 142.5 |
| Other current liabilities | 33.2 | 168.8 | 168.8 | 168.8 | 168.8 |
| Total current liabilities | 105.0 | 465.0 | 494.6 | 536.2 | 557.3 |
| Long-term borrowings | 163.8 | 181.2 | 208.3 | 239.6 | 275.5 |
| Other long-term liabilities | 16.5 | 18.8 | 18.8 | 18.8 | 18.8 |
| Total long-term liabilities | 180.3 | 200.0 | 227.1 | 258.4 | 294.3 |
| Shareholders’ funds | 230.8 | 357.4 | 421.0 | 498.8 | 584.0 |
| Minority interests | 4.4 | 5.4 | 5.4 | 5.4 | 5.4 |
| BV/share (RM) | 0.34 | 0.50 | 0.59 | 0.70 | 0.81 |
Cash Flow (RMmil, YE 31 Mar)
| FY24 | FY25 | FY26F | FY27F | FY28F | |
|---|---|---|---|---|---|
| Pretax profit | 47.2 | 74.2 | 89.2 | 110.4 | 121.0 |
| Depreciation | 7.5 | 13.3 | 15.7 | 16.8 | 21.9 |
| Net change in working capital | (45.2) | (94.2) | (72.7) | (69.5) | (54.6) |
| Others | 21.3 | (80.7) | 4.8 | 5.8 | 6.8 |
| Cash flow from operations | 30.8 | (87.4) | 37.0 | 63.5 | 95.1 |
| Capital expenditure | (53.3) | (74.4) | (70.0) | (100.0) | (100.0) |
| Net investments & sale of fixed assets | 0.0 | 0.1 | 0.1 | 0.1 | 0.1 |
| Others | (8.0) | (22.8) | 3.5 | 3.5 | 3.5 |
| Cash flow from investing | (61.3) | (97.0) | (66.4) | (96.4) | (96.4) |
| Debt raised/(repaid) | 68.1 | 148.1 | 27.2 | 31.3 | 35.9 |
| Equity raised/(repaid) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Dividends paid | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Others | (13.8) | 62.6 | 37.7 | (1.2) | (9.7) |
| Cash flow from financing | 54.3 | 210.7 | 64.9 | 30.1 | 26.3 |
| Net cash flow | 23.8 | 26.3 | 35.5 | (2.8) | 24.9 |
| Net cash/(debt) b/f | 36.8 | 60.5 | 87.2 | 123.1 | 120.8 |
| Forex | (0.0) | 0.4 | 0.4 | 0.4 | 0.4 |
| Net cash/(debt) c/f | 60.5 | 87.2 | 123.1 | 120.8 | 146.1 |
Key Ratios (YE 31 Mar)
| FY24 | FY25 | FY26F | FY27F | FY28F | |
|---|---|---|---|---|---|
| Revenue growth (%) | 36.0 | 8.0 | 17.9 | 22.5 | 9.2 |
| EBITDA growth (%) | 74.1 | 53.1 | 21.5 | 19.2 | 11.5 |
| Pretax margin (%) | 9.5 | 13.8 | 14.1 | 14.2 | 14.3 |
| Net profit margin (%) | 6.6 | 9.7 | 10.0 | 10.0 | 10.1 |
| Interest cover (x) | -7.6 | -7.5 | -9.1 | -10.7 | -11.8 |
| Effective tax rate (%) | 27.8 | 28.1 | 27.0 | 28.0 | 28.0 |
| Dividend payout (%) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Debtors turnover (days) | 62 | 170 | 180 | 180 | 180 |
| Stock turnover (days) | 12 | 16 | 17 | 17 | 17 |
| Creditors turnover (days) | 57 | 145 | 150 | 150 | 150 |
Source: Company, AmInvestment Bank Bhd estimates
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