• Still O/W, Top Picks: Tenaga Nasional (TNB), YTL Power, and Solarvest(SOLAR). We are positive on the Integrated Clean Energy (TBB) programme2024 as it continues to anchor the domestic renewable energy (RE) ramp upwhile providing sustainable job flows to contractors amidst risingcompetition. While the battery energy storage system (BESS) pilot project’srollout is essential for better RE integration, project returns remain unknown.

• LSS is back and bigger. The Government has unveiled its largest ever largescale solar (LSS) photovoltaic (PV) programme with 2GW of capacity. Thisround introduces a 500MW quota on floating solar. Notably, individualdevelopers will also be permitted to bid for projects with a maximum capacityof 500MW, a tenfold increase from the previous 50MW limit. Assuming acontract value of MYR2.5m per MW, solar projects under LSS5 could be worthc.MYR5bn. The increased quota, higher capacity limits, and focus on floatingsolar create a lucrative and dynamic landscape for solar energy developers. Byfostering competition and stimulating investment, the LSS programme ispoised to accelerate Malaysia's journey towards solar leadership.

• Net energy metering (NEM) additional quota. The NEM initiative has beenextended until Dec 2024, with the additional 100MW and 300MW quotas forNEM Rakyat (residential) and NEM NOVA (commercial and industrial (C&I))categories. We believe this is a positive for the solar contractors as thecontinuation of NEM will provide residential and C&I orders.

• A Low-Carbon Energy Generation Programme was also introduced with atotal quota of 400MW, under the New Enhanced Dispatched Arrangement(NEDA) mechanism. Aiming to diversify Malaysia's RE mix, the programmeinvites developers to propose non-solar RE projects, like small hydro, biogas,and biomass. Applications will be accepted from 5 Feb on a first-come firstserved basis. This initiative is expected to boost electricity reliability by addingnew non-solar RE and creating economic opportunities for developers inthese alternative sectors.

• Key beneficiaries. We identified EPCC solar players (ie SOLAR, Samaiden,Sunview Group (SUNVIEW MK, NR), and Pekat Group (PEKAT MK, NR)), asthe main beneficiaries, as this programme will inject a potential MYR5bnworth of contract opportunities. Reservoir Link Energy (RLEB MK, NR) standsto benefit from sub-contracting jobs and more mounting structure orders.With the allocation to a single developer up to 500MW, we believe this willattract more established players with strong war chests such as TenagaNasional (TNB) and Petronas/Gentari to participate more aggressively. Otherpotential winners will be asset owners of past LSS rounds, given their trackrecords. Previous winners include Advancecon Holdings, Ranhill Utilities,Uzma (UZMA MK), JAKS Resources (JAKS MK, NR), Gopeng (GOP MK, NR)and TNB.

• Downside risks: Lower-than-expected new RE capacity rollout, higher-thanexpected operating costs.

Source: RHB Securities Research - 29 Jan 2024