Solarvest going big into large-scale government projects

  • Corporate News
  • Saturday, 05 Oct 2019

From left are Solarvest chairman Datuk Che Halin Mohd Hashim; Senior Undersecretary (Sustainable Energy) of Ministry of Energy, Science, Technology, Environment and Climate Change Asdirhyme Abdul Rasib, managing director of corporate finance of M&A Securities Sdn Bhd Datuk Bill Tan; Chin Hin Group deputy group executive chairman Datuk Seri Chiau Beng Teik; Atlantic Blue Holdings Sdn Bhd director Tan Paw Boon; Solarvest group CEO Davis Chong Chun Shiong; Minister of Energy, Science, Technology, Environment and Climate Change Yeo Bee Yin and Solarvest managing director Lim Chin Siu.

IT is unusual for a Cabinet minister to launch an initial public offering (IPO) prospectus, especially for an Ace Market-bound company.

But, solar photovoltaic system specialist, Solarvest Holdings Bhd, is one of the rare examples.

On Sept 30, Energy, Science, Technology, Environment and Climate Change Minister Yeo Bee Yin graced the prospectus launch on the invitation of Chin Hin Group Bhd’s group managing director Chiau Haw Choon.

Main Market-listed Chin Hin owns a 45% stake in Solarvest, which was bought in August 2017. Post-IPO on Nov 26, the building materials supplier’s shareholding will be 33.6%.Solarvest will make its debut on Bursa Malaysia at a time when the equity market continues to be volatile, with the benchmark FBM KLCI at its lowest level in four years.

Speaking with StarBizWeek, Solarvest chief executive officer Davis Chong remains unperturbed about the current equity market conditions, pointing out that Solarvest is “here for the long run”.

“The timing of the market and market conditions are beyond our control. We are focused on growing our market share and financial performance. As and when we deliver the earnings, we believe investors will surely notice us,” says Chong.

Solarvest is banking on the government’s push for renewable energy, particularly for large-scale solar power generation, in Malaysia. The government aims to achieve 20% renewable energy in the country’s energy mix by 2025.

Established in 2012, Solarvest is among the first batch of grid-tied solar power installation providers in Malaysia that has obtained the certification from the Sustainable Energy Development Authority and the Grid-Connected Solar Photovoltaic.

Over the last seven years, the group has installed more than 231.97MW capacity of solar panels across residential, commercial and industrial properties, as well as the government-driven large-scale solar (LSS) projects.Solarvest does not manufacture its own photovoltaic cells, but instead assembles third party-sourced solar modules and also offers engineering services.

Most of the solar modules and inverters used by Solarvest are imported from China.

“About 70% of our costs related to the purchase of solar panels and inverters are denominated in US dollars, while 30% is transacted in ringgit,” says Chong.

Asked if Solarvest is affected by the weak ringgit, Chong says that the impact is limited as the company factors in necessary buffer needed to address foreign exchange fluctuations in its purchase quotations.

“We do have concerns on the currency, but we take precautionary measures to tackle this. But, if the exchange rates fluctuate beyond the range of our buffer in the quotation, then we need to revise the tender proposal with our client.

“The good thing is most of our projects are short-term. We have to purchase our products within one to two months after the purchasing order is confirmed. So, the currency risk is not big,” says Chong.

The company is supported by an unbilled order book of RM200.1mil, as at Aug 31. About RM100.8mil of the order book comes from the rooftop solar panel installations for residential as well as commercial and industrial buildings.

A total of RM83.1mil is contributed by the LSS projects, while the remaining RM16.2mil is from other contracts awarded by Metex Modular Sdn Bhd (a subsidiary of Chin Hin) and Pembinaan Yuen Seng Sdn Bhd (non-related party).

Stronger performance

Solarvest is confident of achieving a stronger net profit in the current financial year ending March 31, 2020 (FY20), on the back of its order book which has earnings visibility for the next three to 12 months.

In FY19, the company’s profit after tax in FY19 recorded a significant 35% growth year-on-year (y-o-y) to RM11.1mil, led by a 149% y-o-y growth in revenue to RM112.2mil.

It is worth noting that the solar EPCC player’s gross profit margin has declined to 20% in FY19, as compared with 37% in FY18.

Chong says that the company’s gross profit margin will likely hover in the range of 20% moving forward, as Solarvest plans to go big into LSS projects.

“Large-scale solar projects typically carries lower profit margin. But, we plan to participate more in such projects as they are volume-game in nature and offer higher revenue as compared to our rooftop installations on buildings.

“If we don’t do large-scale solar projects, it is difficult to bring down our operational costs with the amount of people, expertise and machineries that we require. Basically, we need scale,” he points out.

While Chong declined to provide the details, he says Solarvest has bid for more projects under the government’s LSS3 scheme, with higher value than its involvement in the previous two cycles of LSS power projects.

For context, Solarvest’s total contract value under LSS1 was RM61.5mil for five projects.

Meanwhile, under LSS2, its total contract value was RM168.6mil for four projects. Solarvest has bid for six projects under LSS2 earlier.

Solarvest will be raising RM34.6mil from its IPO at an issue price of 35 sen per share.

The IPO entails a public issue of about 98.83 million shares in the group, representing 25.3% of its enlarged share capital.

Upon listing, Solarvest will have market capitalisation of RM136.7mil.

Of the RM34.6mil amount to be raised, about RM19.20mil or 55.5% would be used for the group’s working capital for daily operations and future projects.

Solarvest also planned to purchase machinery and equipment as well as upgrade its information technology software and hardware.

The remaining IPO proceeds would be used to repay bank borrowings (RM5mil or 14.5%) and listing expenses (RM3.4mil or 9.8%).

Valuation-wise, the company’s price-to-earnings ratio stood at 12.5 times in FY19. Meanwhile, its gearing ratio was 0.6 times.

Commenting about Solarvest’s prospects, Chong says that the company intends to participate as owner of LSS plant in future bids, instead of just being the EPCC provider. The objective is to grow the company’s recurring income stream.

Currently, Solarvest owns a 1MW solar power plant in Pokok Sena, Kedah, with a 21-year concession from December 2014 until 2035.

“We target to achieve an internal rate of return of 8% to 10% for our large-scale solar investment.

“We are looking at forming joint-venture for this purpose in the near future for the next large-scale solar scheme by the government. We have discussed this for LSS3, but it didn’t take place,” says Chong,

He adds that Solarvest also aims to position itself as a turnkey EPCC provider for LSS projects.

“We want to grow from being a subcontractor to participate as turnkey EPPC. We hope to include new technologies such as floating solar panel systems in our service offering,” Chong says, adding that Solarvest will also expand geographically within Malaysia and into Taiwan and Vietnam within the next two years.

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Solarvest , Yeo Bee Yin , prospectus launch


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