• Upgrade to OVERWEIGHT from Neutral; Top Picks: Samaiden and Solarvest. We believe the accelerating ESG momentum and increasing adoption of green energy will continue driving Samaiden’s and Solarvest’s growth prospects – two of only four listed pure-play solar EPCC players. Together with surging demand, we see further catalysts stemming from the recent tariff hike and decreasing cost pressure from panel prices and material costs. Earnings should also scale to new highs, backed by robust orderbook on hand and contribution from own green energy plants. Upgrade SAMAIDEN and SOLAR to BUY from Neutral.

• The implementation of a Voluntary Carbon Market (VCM) will drive companies to engage in decarbonisation projects and green investments such as solar adoption, benefitting both solar players. To achieve Malaysia’s target of net zero greenhouse gas (GHG) emissions by 2050, Bursa Malaysia launched the Bursa Carbon Exchange (BCX) at the end of last year. The exchange will facilitate corporations in trading voluntary carbon credits. An auction, scheduled in March, will be conducted for first trades to assist with price discovery for the new standardised carbon credit products listed on the BCX.

• Corporate Green Power Programme (CGPP) applications opened on 7 Nov 2022 and closed on 6 Feb 2023, introducing a 600MW quota. Assuming a contract value of MYR2.3m/MW, the total worth of solar projects under CGPP is c.MYR1.4bn, which will help replenish both companies’ orderbooks. Despite the contracts expected to be announced within three months of the closing date, we expect contract rollouts in 2H23 (industry players see a potential deferment of the closing date). Unlike previous Large Scale Solar (LSS) programmes, the Corporate Green Power Agreement (CGPA) is not structured on a reverse bidding mechanism. Given average bid prices have been decreasing with each LSS programme, the CGPP is more beneficial to solar power producers (SPPs) with the willing buyer-willing seller approach – they need not bid for low tariffs which could eat up into margins as cost increases.

• Tariff hike. The imposition of a 20 sen/kWh Imbalance Cost Pass-Through (ICPT) mechanism surcharge from the previous 3.7 sen/kWh on medium voltage (MV) and high voltage (HV) commercial and industrial (C&I) users including multinational corporations (MNCs) in 1H23 will encourage companies to switch to efficient energy sources. This should benefit SAMAIDEN and SOLAR, potentially raising C&I orders.

• Easing cost factors. Over 2021-2022, key components of solar module prices including raw material prices, shipping costs, module technologies, and FX rates have risen, some even to record highs which caused delays in projects and dampened solar demand. However, by the tail end of 2022, these costs began to decrease, thus lowering the price of solar panels. Against this backdrop, we believe solar demand will pick up. Furthermore, delayed LSS projects should resume with better margins, contributing to both players’ bottomline.

• Valuation. We ascribe a higher 25x P/E to SOLAR vs SAMAIDEN’s 16x on the basis of: i) It being listed on the main market, ii) its previous participation in LSS4 programme, and iii) its regional presence vs SAMAIDEN, which is only starting to expand.

• Key risks: Higher-than-expected module photovoltaic (PV) costs, discontinuation of solar incentives and/or programmes, as well as margin erosion due to competition.

Source: RHB Securities Research - 7 Feb 2023