RLEB's acquisition will ride solar industry in Malaysia, says RHB IB

In a note, the bank projected that RLEB growth trajectory would be further elevated, offering a compound annual growth rate (CAGR) of 21 per cent in forecast earnings for 2021-2023 (FY21F-23F) upon the successful diversification into renewable energy business via the proposed acquisition that comes with profit guarantee terms.

"Besides commercial and industrial works from the Net Energy Metering (NEM) 3.0 scheme, FESB expects more supply and installation of solar mounting systems jobs for fourth cycle of the large-scale solar programme (LSS4) from solar Engineering, Procurement, Construction and Commissioning (EPCC) players," it said.

RHB Investment Bank said the profit guarantee of RM13.8 million for 24 months would mitigate near-term downside risk on work delay due to elevated COVID-19 cases and potential margin pressure from EPCC contractors if solar panel prices remain elevated in the near term.

As such, the transaction is expected to be completed by third quarter of 2021 (3Q21) pending shareholder approval at an extraordinary general meeting (EGM) scheduled for Aug 11, 2021.

Besides, the bank has also forecast that RLEB's oil and gas earnings would be driven by the Mauritania contract and recovery in upstream activities, with a fair value of RM0.73 per share based on 12X FY22F P/E.

It expects the company to deliver a healthier set of results on the back of strong billings from the Mauritania's USD11.5 million well perforation, wash and cement services contract, effective until the third quarter of 2021 (3Q21) after an unexpected weak first quarter of 2021 (1Q21) results.

"Overall, this would sufficiently offset weakness arising from the slower-than-expected domestic upstream recovery in first half of 2021 (1H21), led by movement restrictions and quarantine requirements," it said.