Introduction to Northern Solar Holdings Berhad

Northern Solar Holdings Berhad, a prominent player in Malaysia’s renewable energy sector, is preparing for its Initial Public Offering (IPO). Incorporated on 9 January 2024 and converted to a public limited company on 20 March 2024, the company operates as an investment holding entity. Through its subsidiaries, Northern Solar specializes in the Engineering, Procurement, Construction, and Commissioning (EPCC) of solar photovoltaic (PV) systems, the generation of renewable energy, and operations and maintenance (O&M) of solar PV equipment and systems.

IPO Statistics

The IPO involves a public issue of up to 67.252 million new ordinary shares, priced at RM0.63 per share. The breakdown is as follows:

• 19.8 million shares for the Malaysian public
• 7.9 million shares for eligible directors, employees, and contributors
• 39.56 million shares via private placement to bumiputra investors approved by MITI

Additionally, 35.6 million existing shares will be offered via private placement to selected investors. Post-IPO, Northern Solar’s market capitalization is expected to reach RM299 million, with a historical PE ratio of 24.7x (FY24 adjusted EPS based on an enlarged issued share capital of 395.6 million shares).

Financial Performance

Notably, Northern Solar has demonstrated consistent revenue growth, with improvements in gross profit margin and profitability over the years.

Competitive Strengths

Northern Solar boasts several competitive advantages:

• Proven expertise in customized solar PV solutions, tailored to optimize energy costs for customers.
• A strong track record as a Grade 7 contractor under CIDB, capable of undertaking projects of unlimited size and value.
• Commitment to quality through robust operational controls and compliance mechanisms.
• Experienced executive directors and senior management with diverse expertise in engineering, operations, sales, marketing, and finance.
• Collaborations with notable business partners such as Lagenda Properties and Engtex Group Berhad, offering additional opportunities for EPCC projects.

Business Strategies

To capitalize on growing demand, Northern Solar has outlined several strategic initiatives:

• Relocation to a new corporate office with an engineering knowledge center, enhancing operational efficiency and corporate image.
• Expansion into Johor and Melaka to strengthen market presence in the southern region and capture new business opportunities.
• Geographical expansion to the northern region of Peninsular Malaysia, targeting states like Pulau Pinang, Perak, Kedah, and Perlis.
• Development of a portfolio of solar PV assets to generate recurring revenue by selling electricity to NEM and SELCO consumers.
• Efforts to increase market share within Malaysia’s solar PV industry.

Key Risks

Investors should be aware of the following potential risks:

• Project-based revenue may lead to inconsistent financial performance.
• Delays or inability to complete projects could impact profitability.
• Risks of defects liability claims due to defective workmanship.
• Dependence on timely supply of solar equipment and components at acceptable prices and quality.
• Need for compliance with regulatory approvals, permits, and licenses, with potential penalties for non-compliance.
• Reliance on the skills and efforts of key senior management and employees for sustained success.

Dividend Policy

While Northern Solar does not currently have a formal dividend policy, the company intends to pay dividends in the future. Such payments will depend on financial performance, capital expenditure requirements, and other considerations deemed relevant by the board.

Use of Proceeds

The IPO is expected to generate gross proceeds of RM42.4 million, which will be allocated as follows:

• Working Capital: RM29.2 million (68.8%) within 24 months
• Repayment of Bank Borrowings: RM5.5 million (13.0%) within 12 months
• Business Expansion: RM3.2 million (7.4%) within 24 months
• Estimated Listing Expenses: RM4.6 million (10.8%) within 1 month

Conclusion

Northern Solar Holdings Berhad’s IPO offers a compelling opportunity to invest in Malaysia’s growing renewable energy sector. With a strong track record, innovative strategies, and a focus on expansion, the company is well-positioned for future growth. However, potential investors should weigh the associated risks carefully. The lack of a formal dividend policy may also influence investment decisions. Overall, Northern Solar’s commitment to quality and strategic initiatives provides a solid foundation for long-term success.