KUALA LUMPUR (Aug 8): Two research houses maintained their calls on the utilities sector, after the Energy Commission announced 22 successful bids for a total of 563 megawatt (MW) of solar capacity under the Corporate Green Power Programme (CGPP). 

In their respective research notes, MIDF Research kept its “positive” call, while CGS-CIMB maintained its “neutral” stance on the sector.  

Both have Tenaga Nasional Bhd (TNB) as their top pick, with MIDF reiterating a “buy” rating and a target price (TP) of RM10.50 for the counter, and CGS-CIMB with an “add” call and TP of RM12. 

MIDF’s other top sector picks are engineering, procurement, construction and commissioning (EPCC) players including Samaiden Group Bhd (“buy”; TP: RM1.54), Sunview Group Bhd (“buy”; TP: RM1.32) and Pekat Group Bhd (“buy”; TP: 57 sen).  

CGS-CIMB's top picks include Malakoff Corp Bhd (“add”; TP: 80 sen) and YTL Power International Bhd (“add”; TP: RM1.70). 

MIDF noted that TNB, as the beneficiary in the asset ownership space, was the largest capacity winner under the CGPP, with 90MW of alternating currents (MWac). 

It bagged three projects each with a gross solar export capacity of around 30 MWac — two of them on a joint-venture basis. 

MIDF analyst Hafriz Hezry added on Tuesday (Aug 8) that while the projects will bring TNB closer to its 8.3 gigawatt (GW) renewable energy (RE) capacity target by 2025, the big movers will come from its upcoming 500MW solar park project and 2.5GW hybrid hydro-floating solar projects under the National Energy Transition Roadmap (NETR). 

CGS-CIMB analyst Dharmini Thuraisingam said TNB is expected to continue benefiting from the NETR, with cross-border electricity exports and increased RE projects. 

Additionaly, the analyst estimated the net capacity addition from the CGPP attributable to TNB to be around 48MW from the three projects. 

“Assuming a construction cost of RM3.5 million-RM4.5 million per MW, we estimate a capital expenditure of RM170 million-RM220 million. 

“This would effectively increase its gross installed RE capacity by 2% to around 4,000MW,” said Dharmini, "which brings TNB closer to achieving its RE target of 7,000MW by 2030.” 

MIDF expects the CGPP projects to entail better returns compared to the fourth cycle of the Large Scale Solar (LSS4) programme. 

“Under the CGPP, players are free to secure their own offtaker, hence giving better pricing power as opposed to stiff competition to supply to a single offtaker under the LSS auction mechanism,” said Hafriz. 

Additionally, Hafriz said that CGPP tariffs are likely to reflect a premium for environmental attributes, such as the renewable energy certificates, in which the Green Electricity Tariff sold by TNB was recently raised to 21.8 sen per kilowatt-hour (kWh) effective from August 2023. 

He also said that the system marginal price under the New Enhanced Dispatch Arrangement wholesale market was averaging at around 25 sen per kWh as at June 2023, a decently large premium to LSS4 winning bids of 18-20 sen per kWh for 30-50MW packages.

Aside from asset owners, Hafriz also said that RE EPCC players are likely to be the biggest winners and beneficiaries, given the huge EPCC prospects from the construction of CGPP plants. 

He estimated the 563.4MW already awarded could give rise to some RM1.7 billion worth of EPCC prospects, while the remaining 236.6MW to be awarded could add another RM710 million worth of future EPCC jobs. 

“These serve as timely order book replenishment over the next two years, as LSS4 projects gradually reach completion by March 2024,” he said. 

He expects EPCC awards for the CGPP projects to trickle down into order books over the next six to 12 months. 

Hafriz predicts that the NETR could enhance order book opportunities for EPCC players, and the cost of solar modules has decreased significantly, due to supply chain improvements and increased manufacturing capabilities. 

“We believe easing solar module prices, which make up the bulk of EPCC cost, approximately half of the cost, should be beneficial to EPCC players due to potentially improved margins, especially those on fixed cost terms with clients or project owners. 

“Given the lessons learnt from the implementation of LSS4 projects, which were disrupted due to a sharp rise in solar module costs, we reckon EPCC players would be more conservative with project costing this time around,” he added. 

At the close on Tuesday, Samaiden saw its shares fall by one sen or 0.78% to RM1.28, valuing the group at RM510.22 million. 

Sunview’s share price also fell by one sen or 1.06% to 93 sen. Its market capitalisation stood at RM435.24 million. 

Pekat saw its counter unchanged at 47.5 sen, with a market capitalisation of RM302.96 million. 

Malakoff was unchanged at 63.5 sen. Its market capitalisation stood at RM3.15 billion. 

YTL Power was up 3.33% or five sen to RM1.55, valuing the group at RM12.65 billion. 

TNB’s counter rose by four sen or 0.42% to RM9.60. Its market capitalisation stood at RM55.56 billion. 

CGS-CIMB said other beneficiaries with exposure to the RE space include Solarvest Holdings Bhd, Sime Darby Plantation Bhd, Mega First Corporation Bhd and MK Land Holdings Bhd.  

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