Published on 28 Jun 2023.
RAM Ratings has assigned A1/Stable/P1 ratings to Solarvest Holdings Berhad’s (Solarvest or the Group) proposed RM1 bil Islamic Medium-Term Notes/Islamic Commercial Papers (IMTN/ICP) Programme. The ratings are currently premised on an initial issuance of RM100 mil under the programme.
The ratings reflect Solarvest’s leading position in the domestic solar engineering, procurement, construction and commissioning (EPCC) space, its proven track record as well as its healthy debt coverage metrics and balance sheet. With an established presence for over a decade, Solarvest has to date built solar plants with a total capacity of about 464 MW domestically (estimated 14.7% share of the solar EPCC space for the large-scale solar (LSS), residential, and commercial and industrial segments). Its past success in securing contracts and established reputation for strong execution and delivery will likely keep Solarvest’s RM550 mil unbilled order book (end-March 2023) replenished. An approximate 2.5 GW tender book as at end-February 2023 and offshore expansions will further boost the Group’s growth prospects, although meaningful contributions may be realised only in the longer term.
After a two-year slowdown amid the pandemic, Solarvest’s revenue soared by 107.9% to RM365.5 mil in FY Mar 2023, lifted by the faster pace of LSS4 progress billings. A heavier debt load to finance the development of its own solar farms, however, suppressed the Group’s funds from operations debt coverage (FFODC) to 0.25 times (fiscal 2020 to fiscal 2022: 0.36 times-1.15 times) in the same period. Concurrently, gearing deteriorated to 0.66 times (fiscal 2020 to fiscal 2022: 0.18 times average), mainly due to the drawdown of project financing to fund the construction of its LSS4 plants.
Under our sensitised scenario, we expect FFODC to stay satisfactory at an average of 0.22 times over the next four years. We envisage Solarvest to undertake RM141.4 mil to RM165.8 mil additional borrowings per annum in the next four years. Its gearing remains manageable, averaging 0.93 times on the assumption that the Group continues its expansion at a measured pace. RAM will reassess Solarvest’s credit profile if its expansion plans accelerate and further additional indebtedness or project financing is required beyond what was represented.
Cashflow generation in the near term will be mainly supported by EPCC progress billings and maiden electricity generation from Solarvest’s three LSS4 solar farms. We believe overseas expansions and potential contract wins from the Corporate Green Power Programme (CGPP) will contribute positively to the Group’s top line and earnings from FY Mar 2024. Execution risks and market unfamiliarity associated with offshore expansions are somewhat moderated by Solarvest’s prudent approach of establishing partnerships and collaborations with local players in overseas ventures, some of which are long-established clients.
Its ratings are, however moderated by the competitive and fragmented domestic solar EPCC space which may lead to narrower margins for the industry overall. To differentiate itself, Solarvest offers a suite of sustainable solutions to complement its EPCC services. The regulated solar sector where industry prospects are highly dependent on fiscal policy direction may also pose a challenge.
Solarvest’s revenue is largely driven by solar EPCC contracts which generally span only one to two years. As the Group grows its recurrent income through the expansion of the Powervest deferred financing model and the ownership of concession-based assets, it would require longer-term financing to better match its funding needs. At the same time, we take comfort as no funding mismatch is observed and the Group’s current liquidity profile is deemed healthy.
Ho Chian Leng, CFA
(603) 3385 2527
Chong Van Nee, CFA
(603) 3385 2482
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Published by RAM Rating Services Berhad
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Ratings on Solarvest Holdings Berhad