KUALA LUMPUR: Rising electricity costs and corporate energy reporting mandates are set to drive solar adoption, boosting solar engineering, procurement, construction, and commissioning (EPCC) companies' order books to record levels.
Kenanga Research has an "Overweight" call on the sector, underpinned by the government's robust execution of renewable energy (RE) initiatives and expanding solar quota allocations.
Kenanga's top picks for the sector are Solarvest Holdings Bhd and Samaiden Group Bhd.
The firm said there is a strong surge in job wins and order book growth within its coverage driven by EPCC contracts under the corporate green power programme (CGPP).
"With the CGPP set to wrap up by the end of 2025, we expect the momentum of job opportunities to continue."To date, listed firms have secured RM1.2 billion in contracts, well below our RM2.4 billion CGPP target over the past three months."Thereafter, the Energy Commission (EC) will embark on the 2 gigawatt (2GW) Large Scale Solar 5 (LSS5), the largest LSS programme thus far, in four packages"We estimate that there will be at least RM5b worth of PV system EPCC jobs coming from the LSS5 ," it said in a report published on Dec 30, 2024.
The research house said developers whose bids for LSS5 are unsuccessful may turn to commercial and residential solar systems (CRESS) as an alternative for project development, potentially generating additional EPCC contract opportunities for the sector.
"While bidders have been shortlisted recently, the EC has not revealed winners or the winning bid range likely due to timing sensitivities," it said.
Kenanga noted that 510 megawatt (MW) of capacity remains unidentified, likely awaiting finalisation of details, and they believe this portion may consist of similar or smaller capacity.
"Most of the revealed winning capacities of the 2GW LSS5 typically ranged around 100MW each, and thus we estimate that if the remaining awards are also at 100MW, there is no less than five awards remaining of which Solarvest Holdings Bhd would be in our view among the winners, securing up to 20 per cent of the 510MW," it added.
Kenanga said this projection is based on the company's prior success in LSS4, where it secured 67MW, and its extensive experience in executing similar projects, positioning it as a strong contender.
"However, our checks suggest a few likely winners, with those under our coverage expected to capture at least 8 per cent of the market share, aligning with our expectations."Given the current solar panel prices, we estimate the winning rates to fall between 14 sen/kilowatt hour (kWh) and 18 sen/kWh, yielding a project internal rate return (IRR) of 8 per cent.
"For Solarvest specifically, we expect the bid to fall within the mid-high teen range, consistent with its strategy of targeting high IRR projects," it added.
Meanwhile, Kenanga said there are early indications that the severe oversupply in the solar industry may be starting to ease.
The research house said solar panel prices have reached an all-time low of US$0.09 per watt, falling below production costs.
"In this highly competitive environment, Chinese solar manufacturers are struggling to maintain market share, and the sustained low prices are putting significant pressure on them.
"We anticipate that most solar manufacturers will report losses this year, with some unable to withstand the financial strain and ultimately exiting the market."While this pressure could set the stage for a potential recovery, a substantial rebound is unlikely in 2025," it added.
Kenanga said RE players are still in a season of being able to enjoy a good runway on margins.
"Moreover, Chinese solar manufacturers are halting production at Southeast Asian plants due to weak export outlook, following a US tariff increase on solar panels imported from China—rising to 50 per cent from 25 per cent as of 1 Aug 2024."
"Recall, Longi has halted all five production lines at its plant in Vietnam, and is winding down its operations in Malaysia, Trina is shutting down its plants in Thailand and Vietnam."Despite this adjustment, global solar panel supply remains excessive," it added.
Kenanga said it expects solar module prices will be reaching US$0.09 per watt by end of this year, an extension to its multi-year decline.