KUALA LUMPUR: Domestic solar power players are poised to do well on the back of a robust global renewable energy (RE) scene.
RHB Research noted the International Energy Agency (IEA) expects global RE capacity growth to continue reaching new highs in 2023- 2024.
Of this, the solar photovoltaic (PV) segment should continue to dominate the picture and account for two-thirds of such growth.
Major markets such as China, Europe, the United States and India are likely to contribute strong numbers due to lower module prices and favourable policy-led initiatives, it said.
"Domestic engineering, procurement, construction and commissioning (EPCC) contractors will likely register strong earnings in the second half of 2023 (2H23) on their solid orderbooks, largely underpinned by Large-Scale Solar 4 (LSS4) contracts as well as strong commercial and industrial (C&I) demand.
"We see further tailwinds from easing cost factors, as solar module prices have dipped to US$0.17/W (from US$0.23/W in early 2023) and may further retrace to US$0.15/W. "Note that polysilicon prices have plunged by 56 per cent year-to-date and 80 per cent from the peak in August 2022 due to oversupply," it said in a note.
The research firm upgraded its rating on the power sector to 'Overweight; from 'Neutral' after lifting its call for Tenaga Nasional Bhd (TNB) to 'Buy'.
The improved rating for TNB was due to the limited regulatory risks, as it noted the government is maintaining the imbalance cost pass-through (ICPT) framework, and making consistent payments to TNB.
It also stated that the Singapore's Energy Market Authority (EMA) will introduce a temporary price cap (TPC), effective July 1, on wholesale electricity prices, to prevent huge swings in electricity prices.
The firm was guided that the TPC will have minimal impact on YTL Power International Bhd as bulk of the generated volume (c.75- 80%) is sold to its retail arm, and the rest sold to SP Services (under a vesting contract scheme) and the wholesale pool.
On the sector outlook, RHB Research said with core prices set to normalise in the upcoming quarters, the fuel margin impact may still affect coal-fired plants' bottomlines – albeit to a moderate extent.
"We are also cautious over the margin compression risk as many of the companies have reported that the cost of doing business has been higher than expected."