Solarvest’s 6% New Share Placement To Dilute Future EPS

Solarvest Holdings BHD is placing out up to 6% new shares at RM1.41/share,  raising net proceeds of RM56m to fund its capex programmes and working capital.

Kenanga Investment Bank (Kenanga), in a Company Update today (Apr 12), said they are unperturbed by a mild EPS dilution and cut their FY25-26F EPS forecasts by 1% and 2%, respectively, but  fine-tune up their TP by 2% to RM1.91 (from RM1.88). Maintain OUTPERFORM.

SLVEST has proposed to undertake a private placement of 40.2m new  shares, representing up to 6% of its total share base, at an indicative  placement price of RM1.41/share.

Net proceeds of RM56.0m will be channel towards its Powervest solar  financing program (with an installed capacity of about 4MWp), its three solar plants under the CGPP and working capital. 

Based on Kenanga’s estimates, the exercise will dilute its FY25F and FY26F EPS by 1% and 2%, respectively, as a 6% increase in its share base is  partially mitigated by interest savings of RM2.1m annually.

The proceeds will reduce its net debt and gearing of RM107.1m and  0.5x as of end-3QFY24 to RM51.1m and 0.2x, respectively.

Forecasts. Kenanga raised their FY25-26F net profit forecasts by 4% and 3%  respectively (to reflect the interest savings) but cut their FY25-26F EPS  forecasts by 1% and 2% respectively (to factor in the dilution from an  enlarged share base).

Valuations. However, Kenanga fine-tuned upwards their SoP-based TP by 2% to  RM1.91 (from RM1.88) as they recalibrate their estimates for potential  proceeds from the conversion of its outstanding warrants and ESOS. 

There is no change to their valuation bases, i.e. 30x FY26F PER for its  EPCC segment (in-line with the average historical 1-year forward PER  of the solar EPCC sector) and DCF at a discount rate of 5.5% to 5.6%  for its LSS4, CGPP and Powervest assets. Note that Kenangas TP reflects a 5% premium given a 4-star ESG as appraised by them..

Investment case. Kenanga likes SLVEST for: (i) the bright outlook of the RE  market in Malaysia, underpinned by the government’s strong  commitment towards RE, the export potential of RE and improved commercial viability of solar power projects on falling solar panel prices,  (ii) its strong market position, execution track record, clientele and value  proposition of its PV system financing programme, and (iii) its strong  earnings visibility backed by a sizeable outstanding order and tender  books, and recurring incomes from a growing portfolio of solar assets. 

Risks to Kenanga’s call include: (i) the government dials back on RE policy,  (ii) influx of new players in the solar EPCC space, intensifying  competition, and (iii) escalation in project costs.

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