PETALING JAYA: Northern Solar Holdings Bhd’s additional RM34mil utility-scale engineering, procurement, construction and commissioning (EPCC) contract will underpin its earnings visibility over financial year 2027 (FY27) to FY28.
In a report, UOB Kay Hian (UOBKH) Research said the contract under the large-scale solar five (LSS5) marked the group’s second utility-scale project win in the span of a year.
“The 9.5MW alternating current project is slated for commissioning by May 1, 2027, with the bulk of contributions expected to be recognised in FY27. We expect a healthy net margin of 7% to 9% for the above project,” the research house said.
With the inclusion of this new contract, UOBKH Research said it expects Northern Solar to deliver a robust full-year FY27 net profit growth of 50% year-on-year.
According to the research house, FY27’s revenue is likely to double from a combined RM34mil and RM120mil LSS5 project execution, improving commercial and industrial (C&I) demand as businesses seek to mitigate rising electricity costs and a recovery in residential rooftop solar installations supported by a RM3,000 SuRIA Home rebate.
It’s worth noting that the group derives about 85% of its revenue from the C&I segment. The new win has also lifted Northern Solar’s order book to a record RM223mil, primarily anchored by its two LSS5 ECC and EPCC contracts. Its rooftop solar photovoltaic projects across the C&I and residential segments also contributed to its order book.
Furthermore, the research house estimated that a 170MW Corporate Renewable Energy Supply Scheme (Cress) project will provide a solid recurring income base of RM20mil annually, based on 100% ownership.
“Assuming an 80% equity stake, winning a Cress project will lift the group’s net profit by RM18mil, or 34% of FY29’s net profit forecast. Importantly, the equity value from winning the Cress is RM320mil potentially lifting our fair value from RM1.50 to RM2.20 in FY20 when the project crystallises.”
Moving forward, Northern Solar will aim to achieve a steady top line run rate of RM100mil per year for C&I solar installation, a RM60mil to RM80mil yearly for residential and a 5% to 10% annual revenue mix from its standalone and bundled battery energy storage system projects.
With that, UOBKH Research said it will reiterate a “buy” call on the group with a higher price-to-earnings (PE) ratio target price of RM1.40, which is pegged to 15 times forecast FY28 earnings per share.
The research firm said the sector trades at an average PE of 19 times and the valuation is adjusted to reflect market capitalisation and liquidity.
