Periodic/Sector reports
Renewable Energy: LSS6: A Catalyst For The Sector; EPCC Players Continue To Exhibit Strong Earnings Visiblity In The Near Term
OVERWEIGHT (Maintained)
Analyst
Analyst
Highlights
- After a long wait, PETRA finally announced the implementation of the LSS6 programme. The tender calls for a total quota of 2,500MW of solar capacity coupled with 1,250MW BESS, as well as 150MW of solar capacity dedicated to Bumiputera solar developers in Peninsular Malaysia.
- As the tender is a catalyst for the RE sector, we expect robust orderbook replenishment and healthy earnings visibility over the next 3-5 years for EPCC players. We estimate a total of RM9b of EPCC contract opportunities to be awarded under the LSS6.
- Maintain OVERWEIGHT. Our sector top picks are Solarvest, Pekat Group and Northern Solar.
Analysis
- PETRA finally calls for LSS6 tender. The Ministry of Energy Transition and Water Transformation (PETRA) have officially called for the implementation of Malaysia’s sixth edition of the Large Scale Solar (LSS6) programme. The tender calls for a total quota of 2.5GW (higher than our estimated 2GW) of solar capacity together with 1.25GW of battery energy storage system (BESS), as well as 150MW of solar capacity dedicated to Bumiputera solar developers in Peninsular Malaysia (see package breakdown on RHS table). The projects are scheduled to be commissioned in phases and targeted to achieve full commercial operation by 31 Dec 29.
- Long awaited by industry players, this development is positive, in our view. The launch of the flagship LSS6 programme tender reinforces our investment thesis that solar engineering, procurement, construction and commissioning (EPCC) players will continue to benefit from strong orderbook replenishment and healthy earnings visibility over the next 3-5 years. This is further bolstered by the higher-than-expected capacity allocation of 2.5GW and the inclusion of 1.25GW of BESS. Based on capex of RM3.5m/MW for a solar plus BESS system, we expect a total of RM9b in jobs to be dished out under LSS6. Solarvest is a primary beneficiary, assuming it maintains its estimated 30% share of the utility-scale EPCC market. Meanwhile, Northern Solar is well positioned to capture EPCC contracts for smaller-scale projects (<100MW).
- Priority given to strategic landbanks and experienced developers. Based on the announcement, the LSS6 development will focus on the southern region of Peninsular Malaysia, driven by the area’s rising power demand. As such, experienced solar developers with strategic landbanks located within that region command a competitive advantage in securing the tender. The government's emphasis on the use of locally manufactured renewable energy (RE) components further enhances the prospects of developers with strong domestic supply chain networks. Separately, we anticipate the LSS6 programme will allocate a higher capacity allocation for floating solar farms (LSS5: 399.99MWac; LSS5+: 200MWac), benefitting EPCC as floating solar projects typically command a premium of about 20% in contract value relative to ground-mounted installations.
Highlights
- After a long wait, PETRA finally announced the implementation of the LSS6 programme. The tender calls for a total quota of 2,500MW of solar capacity coupled with 1,250MW BESS, as well as 150MW of solar capacity dedicated to Bumiputera solar developers in Peninsular Malaysia.
- As the tender is a catalyst for the RE sector, we expect robust orderbook replenishment and healthy earnings visibility over the next 3-5 years for EPCC players. We estimate a total of RM9b of EPCC contract opportunities to be awarded under the LSS6.
- Maintain OVERWEIGHT. Our sector top picks are Solarvest, Pekat Group and Northern Solar.
Analysis
- PETRA finally calls for LSS6 tender. The Ministry of Energy Transition and Water Transformation (PETRA) have officially called for the implementation of Malaysia’s sixth edition of the Large Scale Solar (LSS6) programme. The tender calls for a total quota of 2.5GW (higher than our estimated 2GW) of solar capacity together with 1.25GW of battery energy storage system (BESS), as well as 150MW of solar capacity dedicated to Bumiputera solar developers in Peninsular Malaysia (see package breakdown on RHS table). The projects are scheduled to be commissioned in phases and targeted to achieve full commercial operation by 31 Dec 29.
- Long awaited by industry players, this development is positive, in our view. The launch of the flagship LSS6 programme tender reinforces our investment thesis that solar engineering, procurement, construction and commissioning (EPCC) players will continue to benefit from strong orderbook replenishment and healthy earnings visibility over the next 3-5 years. This is further bolstered by the higher-than-expected capacity allocation of 2.5GW and the inclusion of 1.25GW of BESS. Based on capex of RM3.5m/MW for a solar plus BESS system, we expect a total of RM9b in jobs to be dished out under LSS6. Solarvest is a primary beneficiary, assuming it maintains its estimated 30% share of the utility-scale EPCC market. Meanwhile, Northern Solar is well positioned to capture EPCC contracts for smaller-scale projects (<100MW).
- Priority given to strategic landbanks and experienced developers. Based on the announcement, the LSS6 development will focus on the southern region of Peninsular Malaysia, driven by the area’s rising power demand. As such, experienced solar developers with strategic landbanks located within that region command a competitive advantage in securing the tender. The government's emphasis on the use of locally manufactured renewable energy (RE) components further enhances the prospects of developers with strong domestic supply chain networks. Separately, we anticipate the LSS6 programme will allocate a higher capacity allocation for floating solar farms (LSS5: 399.99MWac; LSS5+: 200MWac), benefitting EPCC as floating solar projects typically command a premium of about 20% in contract value relative to ground-mounted installations.
OVERWEIGHT (Maintained)
Analyst
Analyst
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