We maintain OVERWEIGHT on the sector, underpinned by the government's robust execution of RE initiatives and expanding solar quota allocations. Looking towards 2025, rising electricity costs and corporate requirements to report energy-saving initiatives are set to accelerate solar adoption, driving solar EPCC players' order books to all-time highs. Key catalysts include RM2.4b in EPCC contracts from the 800MW Corporate Green Power Programme (CGPP), with earnings recognition beginning in 1QCY25, and RM5b in LSS5 EPCC contracts set to be awarded in the same period, as the successful bids-reportedly already decided-are gradually being disclosed. These initiatives, which are expected to sustain the sector's growth until 2028, also dovetail with declining panel prices due to oversupply, boost margins of solar EPCC contractors, and stimulate investment in solar power systems. Our sector top picks are SLVEST (OP; TP: RM1.91) and SAMAIDEN (OP; TP: RM1.51).

A new heat wave of solar EPCC jobs. In recent months, we have seen a strong surge in job wins and order book growth within our coverage driven by EPCC contracts under the CGPP. With the CGPP set to wrap up by end-2025, we expect the momentum of job opportunities to continue. To date, listed firms have secured ~RM1.2b in contracts, well below our RM2.4b CGPP target over the past three months. Thereafter, the Energy Commission (EC) will embark on the 2GW LSS5, the largest LSS programme thus far, in four packages. We estimate that there will be at least RM5b worth of PV system EPCC jobs coming from the LSS5. Developers whose bids for LSS5 are unsuccessful may shift to CRESS as an alternative for project development, potentially creating further EPCC contract opportunities for the sector.

LSS5 winners partially revealed, and we expect SLVEST to be among remaining winners. While bidders have been shortlisted recently, the EC has not revealed winners or the winning bid range likely due to timing sensitivities. According to The Edge, companies that have finalised their agreements are gradually making their way into the news (see Exhibit 1). However, 510MW of capacity remains unidentified, likely awaiting finalisation of details, and we believe this portion may consist of similar or smaller capacity. Most of the revealed winning capacities of the 2GW LSS5 typically ranged around 100MW each, and thus we estimate that if the remaining awards are also at 100MW, there is no less than five awards remaining of which SLVEST would be in our view among the winners, securing up to 20% of the 510MW. This projection is based on SLVEST's prior success in LSS4, where it secured 67MW, and its extensive experience in executing similar projects, positioning it as a strong contender. However, our checks suggest a few likely winners, with those under our coverage expected to capture at least 8% of the market share, aligning with our expectations. Given the current solar panel prices, we estimate the winning rates to fall between RM0.14/kWh and RM0.18/kWh, yielding a project IRR of 8%. For SLVEST specifically, we expect the bid to fall within the mid-high teen range, consistent with its strategy of targeting high IRR projects.

Exhibit 1: Winners of the LSS5 No. Winner Capacity (MWac) 1 TNB Renewable Sdn Bhd 500.00 2 Edra Power Holdings Sdn Bhd and Worldwide Holdings Bhd 300.00 3 Gentari Sdn Bhd 100.00 4 Ditrolic Energy Holdings Sdn Bhd 100.00 5 Samaiden Group Bhd 99.99 6 Parkland Renewable Energy Sdn Bhd 99.99 7 Wawasan Demi Sdn Bhd 99.99 8 Nusantara Suriamas Sdn Bhd 99.99 9 Conextone Energy Sdn Bhd 90.00

Source: Kenanga Research - 30 Dec 2024