3QFY22 results fell short
Expect improvements from 4Q onwards
9MFY22 core net profit of MYR3.9m (-61% YoY), made up only 29% of our FY22E. Despite a QoQ rebound in 3QFY22 net profit, earnings still fell short due to lower-than-expected construction activities and higher admin cost. We expect to see sequential earnings improvements from 4Q onwards, backed by outstanding orderbook of MYR595m that offers medium-term earnings visibility until end-CY23. We trim FY22/23/24E net profit by 39%/1%/8% respectively. Our PEG-TP is lowered to MYR1.29. Maintain BUY.
Slower EPCC activities, higher admin cost
3QFY22 EPCC pretax profit fell 48% YoY on slower works recognition (-33% YoY) due to lower operational days during National Recovery Plan (NRP), couple with lower margin (-2.3ppts to 7.7%) due to higher raw material prices. Its earnings were also hit by higher admin costs (+34% YoY) due to one-off main market transfer expenses of MYR0.7m, higher rental expenses (new HQ) and increased staff costs from higher headcounts for new expansion plans.
Trimming FY22-24E earnings
Our revisions incorporate a slight delay in construction works for LSS4, which is now only expected to commence from April 2022 onwards, coupled with lower EPCC margin. Meanwhile, we maintain our orderbook (OB) replenishment of MYR400m. We now expect FY22/23/24E core net profit to lower by 39%/1%/8% respectively.
Sustainable earnings growth from strong OB
Outstanding EPCC orderbook stood at MYR595m as of end-Dec 2021 will continue to support growth until end-CY23. YTD-FY22, Solarvest has secured a total MYR418m of EPCC contracts to develop the LSS4 projects and is expected to secure a couple more by March 2022. Elsewhere, we believe positive outcome from its overseas tender in Taiwan would provide upside potential to its earnings – the tender outcome is expected to be known from mid-2022.