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Application for Samaiden Group Berhad IPO shares is now open until 5 October 2020. Its first trading day will be 15 October 2020. Will you be applying to subscribe to the IPO shares? Will you be buying the shares on its first trading day? Here are some key things to know.

Samaiden Group Berhad is a EPCC service provider (Engineering, Procurement, Construction, Commissioning) of solar PV systems (less than 1MWac) and power plants (more than 1MWac). Its other business activities include provision of RE and environmental consulting services, as well as O&M services.

1. Massive growth in the last 3 years was driven by select few large tender wins for Large Scale Solar (LSS) EPCC projects, which are not recurring.Revenue Breakdown by Segments

Samaiden was only generating RM6.5million in revenue back in 2017. The Company’s revenue jump in 2018 was due to winning its first LSS tender for a 23.7MWp power plant in Seberang Perai. Subsequently, it continued to win 2 more LSS tenders for a 13.5MWp power plant in Kluang and 25MWp power plant in Pasir Gudang.

The Company’s growth in the recent years are highly concentrated in these 3 LSS projects. These income are not recurring. We have to assess the future prospects of the Company to determine if value is renewable.

2. The Company’s has a secured order book, to be recognized for coming FY2021, which is equivalent to 39% of revenue in FY2020.

As at 1 September 2020, the Company’s current order book was at RM31.35 million, of which RM29.75 million of potential revenue is expected to be recognized in FY2021. The amount is equivalent to 39% of 2020 revenue of RM76.17 million.

In the remaining 10 months of FY2021, management’s ability to secure and deliver more orders to recognize more revenue for the financial year should be assessed.

There was no mentioned of Samaiden securing any tenders for LSS3 in its IPO prospectus. There were only 5 shortlisted power plants in LSS3, between 90MWac to 100MWac, and expected to be commissioned in 2021. The probability of the Company sustaining or growing the business in FY2021 is tied to the probability of the Company winning tenders for LSS3 power plants (more likely on the front of supply and installation of interconnection facility).

3. Management has laid out ambitious expansion plans for the next 24 months – local expansion, Vietnam expansion and becoming a power plants owner.

Samaiden will be establishing sales and technical offices in Johor, Penang and Sabah. These offices are meant to help grow the solar PV systems business (less than 1MWac, typically on the rooftops of residential, commercial or industrial buildings). There is currently less than 1% of rooftops in Malaysia, that are with a solar PV installed. The Company can push hard on this front with presence in both the North and South of Peninsular Malaysia and East Malaysia.(https://www.seda.gov.my/pdfdownload/invest-in-the-sun_what-covid-19-has-taught-us/?wpdmdl=7026)

On the foreign markets front, Samaiden is expanding into Vietnam. It has secured its first solar PV project in Oct 2019 for a commercial building in Bac Lieu. It will be submitting for relevant operations license by 1H 2021. The Company is also setting up a sales and technical office in Vietnam.

The Company is also looking to expand its HQ in Selangor from its current combined office area of 3,875 sq ft to a 10,000 sq ft office and storage facility.

To improve the renewability of its income, Samaiden is venturing into build-own-operate renewable energy power plants. It is currently in the process of tendering for the following 2 projects.
A 1.2MWac integrated biogas power generation plant in Bachok, Kelantan, with a development cost of RM25 million and IRR of 8.6%.
A 12MWac solar PV power plant in Sungai Petani, Kedah, with development cost of RM50 million. (Should the Company wins the bid, IRR could be in the range of 7%.)

4. The Company is a small fish in a highly competitive segment, and venturing into an adjacent equally competitive segment.

There are currently more than 150 solar PV contractors registered with CIDB. Samaiden is the smaller player with less than 5% market share, as per the market research by Vital Factor Consulting.

The Company is venturing into an equally competitive power plant owner segment. Take for example, the ongoing LSS Mentari / LSS4 that it is currently bidding for. There were 112 bidders in the last LSS3 bidding round, 116 bidders in LSS2, 70 bidders in LSS1.

For LSS Mentari / LSS4, Samaiden is bidding for Package 1. Package 1 bids are for solar PV power plants between 10MWac to 30MWac and a total of 500MWac will be awarded. A rough calculation indicates around potentially 25 winning bidders. Assuming 100 bidders for the package, Samaiden is looking at a 25% winning probability.

5. The Company has a stable balance sheet (even after executing its ambitious expansion plans).

Pre-IPO, the Company had a total RM21.6 million in cash equivalents and RM1.1 million in debt. Post-IPO, the Company will have a total RM51 million in cash equivalents and RM1.1 million in debt.

After executing the upfront capex requirements for its expansion plans, Samaiden will arrive at a stable net debt financial position with a total RM32.6 million in cash equivalents and RM32.7 million in debt.

RM’000Cash EquivalentsDebtNet Amount 32,558 32,696As at 30 June 2020 (Post-IPO) 50,968 1,096
Capex for new Corporate office and storage facilities (7,000) 3,600
Capex for new equipment, tools and IT systems (1,210) –
Capex for Bachok biogas power plant (3,000) 12,000
Capex for Sungai Petani solar PV power plant (4,000) 16,000
IPO expenses (3,200) –
A Small Net Debt Position

6. The renewable energy industry is a hot sector with high future growth on the back of favourable government policies.

Malaysia has a renewable energy generation capacity target of 20% by 2025. As of 2019, the renewable energy generation capacity mix is only at 2%. Assuming no change in power demand in Malaysia, the infrastructure to generate renewable energy will have to 10x between 2019 to 2025.(https://www.seda.gov.my/pdfdownload/invest-in-the-sun_what-covid-19-has-taught-us/?wpdmdl=7026)

The Malaysian government has also put out various incentives in the form of taxation and financing to promote the growth.

The solar PV systems cost is also expected to continue trending down, opening up for more stakeholders to participate in installing solar panels.(https://www.seda.gov.my/pdfdownload/invest-in-the-sun_what-covid-19-has-taught-us/?wpdmdl=7026)(https://www.seda.gov.my/pdfdownload/invest-in-the-sun_what-covid-19-has-taught-us/?wpdmdl=7026)

7. IPO Price at RM 0.48 per share provides sufficient room for IPO investors to realize potential returns of more than 30%.

The IPO prospectus stated a PE of 13.91x for its IPO pricing.

However, the same IPO prospectus also stated that the tax incentives enjoyed by the Company had expired on 30 June 2020. After adjusting for a 24% statutory tax rate and one-off items, the IPO price of RM0.48 is at the following valuation multiples:
Adjusted P/E = 18.4x
Adjusted EV/EBITDA = 14.6x
Adjusted P/FCF = 11.5x

If we were to compare with the current trading valuation of Solarvest ($SLVEST 0215), the trading PE at RM1.23 per share is 33.8x.

Do note that Solarvest is almost 5 times the size of Samaiden. If we apply a size discount to the comparable PE of 33.8x and assume a PE of 25x, the indicative value for Samaiden is RM0.65 (36% upside). Given the potential optimism of the market, we will not be surprised if the market decides to award a 30x PE to Samaiden, resulting in a value of RM0.78 (63% upside).

The wild case for an ignorant and irrational market where earnings are not adjusted for the expiry of tax incentive, share price could hit the region of RM0.85 to RM1.05 (80% to 120% upside). So, …..

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