HLIB Research retains its ‘overweight’ call on the RE sector for 2025.
PETALING JAYA: The outlook for the renewable energy (RE) sector remains positive, driven by the rollout of new projects and ongoing initiatives to support the country’s green transition.
According to Hong Leong Investment Bank (HLIB) Research, among the coming catalysts for the RE sector include the 2,000-megawatt (MW) large-scale solar five (LSS5) project, corporate renewable energy supply scheme (Cress) programme, 190MW feed-in-tariff (FiT) 2.0 scheme and various floating solar projects.
“We retain our ‘overweight’ call on the RE sector for 2025,” the brokerage said.
“We like the sector riding on strong structural themes as well as positive earnings growth cycle,” it wrote in its report yesterday.
HLIB Research ascribed “buy” calls on the two RE stocks under its coverage, namely, Solarvest Holdings Bhd
and Samaiden Group Bhd.
It forecast new record high earnings for both Solarvest and Samaiden, with a projected annual growth of 26% and 24% respectively.
This is on the back of the strong order-book replenishment cycle seen in 2024.
“Note that Solarvest has been recording all-time high earnings in two preceding fiscal years and we reckon 2025 will be no different as the second half plays catch up driven by corporate green power programme (CGPP) projects,” HLIB Research stated.
“In general, our observation of estimated engineering, procurement, construction, and commissioning (EPCC) costs per megawatt-peak (RM2.2mil to RM2.7mil) have been healthy putting to bed our earlier concerns of full pass through of lower panel prices – panel prices have declined by 80% since 2022,” it added.
HLIB Research said it expected higher EPCC margins from the CGPP projects to be also supplemented by good margins at the commercial and industrial/residential side.
It pointed out that the Energy Transition and Water Transformation Ministry has done exceedingly well in 2024, following through on ambitious National Energy Transition Roadmap targets with tangible quota and programmes to back-it up.
With a plethora of projects to work with, the brokerage would anticipate a shorter order-book depletion cycle this time amid projected fresh record high earnings.
HLIB Research noted quota winner announcement for the 2,000MW LSS5 programme is anticipated in December 2024.
This comes slightly a year after successful bidders for CGPP were announced.
“We anticipate a quicker turnaround for LSS5 EPCC contracts awards (RM5bil to RM6bil) than the 800MW CGPP given that Tenaga Nasional Bhd is the sole LSS5 off-taker,” it said.
“Note that based on previous iteration, LSS Mentari (LSS4) EPCC contracts trickled out shortly after successful bidders were announced.
“We foresee an unprecedented time for the solar industry as LSS5 EPCC contracts could be converted a year after CGPP conversion (total of 2,800MW versus cumulative installed solar capacity of 1,933MW by 2023),” it added.
The Sustainable Energy Development Authority (Seda) had recently opened the bidding process for the FiT 2.0 programme intended for biomass, biogas and small hydro in 2025, HLIB Research noted.
It added that in total, there would be 190MW available divided by 100MW for small hydro, 50MW for biogas and 40MW for biomass.
“Our back-of-the-envelope-calculations suggest sizeable EPCC contract opportunities of around RM2bil available to contractors.
“This compares favourably with 2023 awarded FiT projects of 36.5MW – mostly in the bioenergy segment,” it said.
Meanwhile, the brokerage noted that the solar module market remains heavily oversupplied with manufacturing capacity of 1,100 gigawatt (GW), far in excess of various estimates of 2024 solar capacity installed of between 400GW and 600GW or an implied manufacturing utilisation of 36% to 55%.
“A majority of panel makers have reported consecutive quarterly losses in 2024 but notable manufacturers like Jinko & Trina are still adding about 45GW of module capacity in 2024.
“In our view, recent ratcheting up of tariffs with potential for more escalation against ‘Plus One’ countries could lead to capacity additions featuring newer technology in other countries as manufacturers secure export routes into the high margin US market thus exacerbating oversupply conditions longer term,” HLIB Research said.
