Last Friday, the Energy Commission released the list of 30 shortlisted bidders for the LSS4 programme, with prices ranging from RM0.1768/kWh to RM0.2481/kWh for a total awarded capacity of 823.06MW out of the 1GW offered. This was selected and filtered down from a total of 138 bids submitted last year. Shortlisted Bursa-listed companies that are within our coverage include TCHONG, TENAGA and UZMA. The LSS4 is for a minimum of 21 years, with commercial operations date in 2022/2023. Based on our rough guesstimates, market rates for project IRRs should be within the mid - to-high single-digit range, with capex ranging from RM3-4m per MW, of which >60-70% are EPCC costs, with the remainder being land costs. Overall, we identified the solar EPCC players (e.g. SLVEST, SAMAIDEN) to be the biggest beneficiary of the LSS4 programme. SLVEST is expected to secure ~200-300MW, while we believe SAMAIDEN should be able to at least secure ~100MW. We expect LSS4 EPCC to fetch roughly low-teens gross margins. Moving forward, in tandem with the government’s target of reaching 20% renewable energy use in Malaysia by 2025 (from ~2% currently), we believe further iterations of the LSS programme could still be possible. As solar still remains the biggest driver of new renewable energy capacity in Malaysia, increased participation in other government-related programmes are also likely (e.g. NEM, NEDA, Green Tax Allowances/Incentives). Furthermore, the award of LSS4 also further confirms the down trending cost of solar energy.

Shortlisted bidders for LSS4. Last Friday, the Energy Commission announced the list of 30 shortlisted bidders for the Large Scale Solar @ MEnTARI (LSS4). To recap, the Energy Commission opened tenders for LSS4 last year for a total electricity generation capacity of 1GW – the largest capacity offered under the LSS programme thus far (versus LSS3 of 500MW, LSS1 and LSS2 combined capacities of 958MW). Tenders were submitted via two packages – (i) Package P1, for capacities of 10MW to less than 30MW, and (ii) Package P2, for capacities of 30MW to 50MW. Ultimately, 138 bids were received – 45 bids for Package P1, and 93 bids for Package P2, with prices ranging from RM0.1399/kWh to RM0.261/kWh.

Listed companies which won bids for LSS4. In last week’s announcement, the Energy Commission released the list of shortlisted bidders, which entails: (i) Package P1 – total shortlisted plant capacities of 323.06MW across 20 bidders, with prices ranging from RM0.185/kWh to RM0.2481/kWh, and (ii) Package P2 – total shortlisted plant capacities of 500MW across 10 bidders, with prices ranging from RM0.1768/kWh to RM0.1970/kWh. Of the 30 shortlisted names, we have identified the following Bursa-listed companies:

(i) ADVCON (NR) at 26MW

(ii) SLVEST (NR) totalling to 50MW

(iii) MKLAND (NR) at 10.95MW

(iv) TCHONG (MP, TP: RM1.30), via a consortium, totalling to 20MW

(v) JAKS (NR) at 50MW

(vi) KPOWER (NR) at a 95%-stake partnership with State Government of Pahang for 50MW

(vii) GOPENG (NR) at 50MW

(viii) TENAGA (OP, TP: RM12.72) at 50MW, and

(ix) UZMA (OP, TP: RM0.83) at 50MW

Impact on the shortlisted bidders. The LSS4 programme is for a minimum of 21 years, with commercial operations scheduled in 2022/2023. Based on our very rough back-of-envelope calculations coupled with what we gathered via our various channel checks, project IRRs should be within the mid-to-high single-digit range. Meanwhile, we guesstimate that capex should range roughly within RM3-4m per MW, of which roughly >60-70% should be the cost of EPCC, with the remainder being land costs. As an example, a 50MW capacity plant should have a rough guesstimated capex of RM160-180m (include both EPCC and land costs). Note that these figures are based on our rough guesstimates, and could vary across different project owners.

Main beneficiaries of LSS4. Apart from the aforementioned successful bidders aside, we have also identified the main beneficiaries of the LSS4 programme to be the EPCC-provider players – such as SLVEST and SAMAIDEN (NR). From what we gathered, SLVEST is confident that it would secure 200-300MW capacity of EPCC jobs from LSS4 alone, which would immensely boost its current order-book of RM197m. Meanwhile for SAMAIDEN, we reckon that the group would be able to secure at least >100MW of EPCC jobs from LSS4, boosting its current order-book of RM185m. We expect these companies to fetch roughly low-teens EPCC margins from LSS4. Additionally, we gathered that construction names (e.g. SUNCON) may also be in the running to secure EPCC jobs from LSS4.

What’s next after LSS4? With the government’s target of reaching 20% renewable energy use in Malaysia by 2025, from currently ~2%, we believe that further iteration of the LSS programme should be underway. With the landscape in Malaysia relatively more competitive (i.e. returns are much more lucrative for overseas solar projects), the tendering process of the LSS programme provides a cost-efficient way for our country to increase its renewable energy mix. In fact, out of the total new energy required to reach our 20% target, most (i.e. 58%) are expected to come via solar projects. We may also see increased participation in other government-driven renewable energy programmes (e.g. NEM, NEDA, Green Tax Allowance/Incentives). Furthermore, in terms of costs, the awarded prices for LSS4 also confirm the down-trend of solar energy prices over the years. As a comparison, lowest bidder for LSS2 was at RM0.3398/kWh back in early 2019, while the lowest bidder for LSS3 was at RM0.17777/kWh in 2020 (versus the lowest bidder for LSS4 at RM0.1399/kWh). This is somewhat an encouraging sign, as the cheaper costs would enhance its commercial attractiveness of solar as an alternative energy source for coal and fossil fuels.

Source: Kenanga Research - 15 Mar 2021