Solarvest's return? Why is share price down almost 50% despite extremely bright outlook?

Solar or renewable energy (RE) is among the hottest industries to invest in because it offers one of the brightest outlooks in the current environment. In Malaysia, we have numerous government initiatives such as LSS, NEM, SARES and GITA/ GITE which are aimed to push RE generation mix to 31% by 2025. For solar specifically, installed capacity is expected to triple from ~1GW in 2020 to ~3GW in 2025 (25% CAGR), creating RM4-5b worth of EPCC jobs over the next 5 years.

From LSS4 alone, Solarvest is confident of getting 200-300MW (or RM600-800m) worth of jobs by end of this year, plus 100MW (or RM200-300m) from commercial & industrial segment. This means Solarvest has around RM1b potential jobs in the pipeline, which is 4-5 times more than last year’s revenue of RM224m.

So why has Solarvest’s share price dropped almost 50% from the peak even though solar industry outlook remains so robust? This is likely because of MCO which stops site activities (cannot construct solar plants) and also rising solar panel prices. So investors know that short-term earnings will be badly affected and became impatient. But are we really willing to let go or penalize such a good company for temporary factors? MCO will eventually be lifted; and Solarvest has very good bargaining power to control solar panel prices as it is one of the biggest buyers in Malaysia.

Besides, institutional funds are increasingly receiving mandates to only invest in companies that have good environmental, social and governance (ESG) practices, and sell those which don’t. That’s why TNB, which generates bulk of its electricity from coal-fired power plant now, sees its share price falling relentlessly despite low PE of 14x and high dividend yield of 8%! In other words, funds are penalizing companies that harm the environment, but are willing to pay premium for companies with good ESG practices. This creates an ESG angle for Solarvest given its leading position in the renewable energy space. Also remember that Solarvest has applied to transfer from ACE to Main market on 24 May. Once completed, more funds will be able to buy.

EPCC jobs from LSS4 are already starting to be dished out. Solarvest just announced one 10.95MW (RM42.9m) package on 5 July and another 20.76MW (RM87.5m) on 15 July. If the target is to secure 200-300MW before year end, it means there are plenty more contract announcements coming. Not to mention, share price has fallen from RM2.2 to now only RM1.22. We personally think it’s attractive and started reentering the stock. Don’t take our words for it, ask their major shareholder Chin Hin who just bought back 5.5m shares last week. Cheers and happy investing.


Sharingan,
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DISCLAIMER: The note above is purely facts sharing for educational and discussion purposes. We do not recommend BUY/SELL actions. We're also invested in the stock(s).