By Sathish Govind
The leadership renewal in the US with Joe Biden in the driver seat has seen fresh interest in the renewable energy (RW) sector in the US and around the world.
His new plan to spend $2 trillion over four years to significantly escalate the use of clean energy in the transportation, electricity and building sectors, part of a sweeping proposal designed to create economic opportunities and strengthen infrastructure while also tackling climate change.
This bold initiative has stirred similar interest elsewhere in the region with stock prices in the RW surging. Solar energy stocks in the US also saw rising prices, notable among them that registered stellar performance.
First Solar INC, a manufacturer of solar energy panels rallied about 34% from May 11 2021 to US$94.06 on September 2, 2021, while SunPower Corp, a company that designs and manufactures crystalline silicon photovoltaic (PV) cells and solar panels, rose by about 109% from September 11, 2020, to US$22.22 on September 1, 2021.
In Malaysia, the government has a 20% target in renewable energy 2025 of which the majority would come from solar energy. Based on a separate study done by the ASEAN Centre of Energy and International Renewable Energy Agency (IRENA), Malaysia’s total installed power generation capacity from solar PV is targeted to hit 5,800MW by 2025, which represents a 6-year CAGR of c.37% from 2019.
This will be driven by the various government initiatives and programmes that support solar PV installation. Among the initiatives are Net Energy Metering (NEM), New Enhanced Dispatch Agreement (NEDA), Supply Agreement of Renewable Energy (SARE), Tax Incentives for Green Technology Project and LSS Photovoltaic Programme.
Malaysian companies involved in Solar energy such as Solarvest Holdings Bhd, Samaiden Group Bhd, Cypark Resources Bhd and Pekat Group also saw their share prices rise.
Solarvest announced its fourth and large-scale Solar 4 engineering, procurement construction & commissioning (EPCC) contract win worth RM175million on September 1, 2021, bringing its outstanding order book to an all-time high of RM583 million.
RHB Research said that it continues to like the stock as a beneficiary of Malaysia’s strong demand for solar energy. Given its proven track record, Solarvest is likely to continue seeing robust contract wins, which should fuel investor optimism towards the stock.
In Mar 2021, Solarvest was selected as one of the shortlisted bidders for LSS4 solar assets by the Energy Commission. Pursuant to that, Solarvest recently signed the PPA with Tenaga Nasional for the construction and operation of three solar plants (total 50MWac) for connection to TNB’s medium voltage distribution network.
The scheduled commercial operation dates for two of the three plants are 31 Dec 2022 and 31 Oct 2023. Once the three plants start operations, RHB estimates an annual revenue contribution of RM 20 million and PAT RM 6 to RM8 million. In a research report dated September 2, 2021. RHB maintains its target price of RM1.51. Soarvest share prices closed on September 2021 at RM1.37.
Another stock in the sector is Pekat Group Bhd which is mainly involved in the engineering, procurement, construction & commissioning (EPCC) of solar PV systems for the commercial, industrial, and residential segments.
The solar EPCC business has benefited greatly from the various government programmes in place, eg Net Energy Metering (NEM), to accelerate solar energy adoption.
RHB research had on 9th June 2021 forecast an RM0.56 based on 20x FY22F P/E. At its IPO price of RM0.32, 44.4 million will be raised from a public issue of 138.7 million mainly from the construction of a new head office and working capital.
Pekat Group Bhd made its debut on Bursa Malaysia’s ACE Market on June 23 2021 and the opening share price was 85 sen.The share price jumped nearly threefold to an intraday high of 93 sen and closed at 81.5 sen, about 155% above its IPO price. Its IPO price was 32 sen. The share price closed On September 2021 at 76 sen.
Future earnings of Pekat will be supported by its 1.2 x order book cover ratio, mainly comprising solar EPCC contracts, where demand is driven by favourable government policies and the inexorable global trend towards renewable energy (RE).
Another stock, Samaiden Group Bhd which is principally involved in the EPCC of solar photovoltaic (PV) systems and power plants.
Its revenue from solar engineering, procurement, construction & commissioning (EPCC) works contribute about 90% of total revenue.
Other business segments include the provision of RE and environmental consulting services, which cover support and consulting services for development and implementation, providing landfill and waste management. The group also does operations and maintenance (O&M) for solar plants.
On October 5, 2020, RHB has projected a fair value of RM0.56 based on 14 times 2021F P/E. The IPO entails a public issue of 61.2 million new ordinary shares at an IPO price of RM.48 shares.
Samaiden made a strong debut on the ACE Market of Bursa Malaysia on October 15, 2020, with its share price rising as much as 64 sen or 133% to RM1.12, from its initial public offering price of 48 sen. The counter, which opened 52 sen or 108% higher at RM1, was the top gainer on Bursa amid muted market sentiment then. The stock price closed on September 2021 at RM 1.23.