Solar surge ahead for RE developers
Kenanga Research sees strong chances for companies like Cypark Resources Bhd , Malakoff Corp Bhd , SD Guthrie Bhd , Sunview Group Bhd , JAKS Resources Bhd and Solarvest Holdings Bhd to secure LSS5+ awards, given their previous unsuccessful bids in LSS5 and their likely continued interest in the programme.
'The higher bumiputra participation this time (versus only 25% in LSS5), should improve the chances for Malakoff, Cypark and SD Guthrie,' the research house noted in a sector report.
Kenanga Research believes up for grabs are sizeable allocations of up to 500MW (high versus LSS5 of up to 30MW) and assuming awards mirror the 100MW blocks seen in LSS5, it estimates around 15 awards remain to be won.
'With the current solar panel prices, we expect winning tariffs to land between 14 sen/kWh and 18 sen/kWh, supporting a project internal rate of return (IRR) of roughly 8%,' said the research house.
The other big winners of the LSS5+ will be the engineering, procurement, construction and commissioning (EPCC) contractors like Solarvest.
Kenanga Research stated that solar EPCC players' order books are hitting all-time highs as they race to deliver Corporate Green Power Programme projects before the end-2025 deadline.
At the same time, 4GW worth of LSS5 and LSS5+ contracts are about to hit the market, with completions targeted by end-2027, unlocking at least RM10bil in solar EPCC value, it stated.
The research house projected the average price of solar modules to dip slightly as Tier-1 manufacturers flood the market.
'Given the low IRR of about 8% in LSS jobs and rising cost risks, we remain bullish on EPCC contractors over asset owners.
'In this space, we see market leader, Solarvest, stands out as a key beneficiary, expected to grab at least 30% of the EPCC market share,' Kenanga Research stated.
Its top sector picks, however, are niche players like Pekat Group Bhd and Swift Energy Bhd, which stand out as profitability-focused RE players and offer cheap proxies to the RE play.
RHB Research also favours the EPCC space within the RE sector, expecting the announcement of shortlisted bidders for LSS5+, which will introduce an additional 2GW, to take place in the coming months.
The timeline will allow asset owners to further take advantage of the currently low solar panel prices – a trend that is expected to continue through to the end of the year.
LSS6 is also anticipated to be launched in the second quarter of 2025, potentially adding another 2 GW of capacity.
Both Kenanga Research and RHB Research are 'overweight' on the RE and power utility sectors.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Star
a day ago
- The Star
Plantations hold steady, await catalyst
PETALING JAYA: Analysts are mostly neutral on the plantation sector, projecting the crude palm oil (CPO) prices to trade between RM3,800 and RM4,200 per tonne in the second half of this year (2H25). According to Kenanga Research, palm oil prices are expected to stay firm through a good 2025 season, underpinned by a global edible oil supply deficit this year, which may persist into 2026. Cost pressures should also stay manageable, thanks to firm selling prices, the research house said in a note to clients yesterday. While valuations appear to have bottomed out and are not excessive, Kenanga Research noted that 'there is no strong upside catalyst either.' It pointed out that edible oil demand remains visible and resilient, with a trend-line growth of 3% to 4% yearly. Meanwhile, supply is expected to grow by only 2% to 3% over 2025 to 2026. As a result, edible oil prices, including palm oil, will likely stay sufficiently firm. Many pure upstream players have also turned net cash, including Hap Seng Plantations Holdings Bhd , Ta Ann Holdings Bhd , TSH Resources Bhd and United Malacca Bhd . 'Hence, decent to good dividend payouts can be expected, unless they embark on merger and acquisition (M&A) activities,' it added. The research house expects non-integrated planters to increasingly become dividend-yield plays. 'For larger integrated players, we expect more M&A or diversification into non-plantation businesses – hence, (they are) likely to stay net borrowers. 'Even so, as the balance sheets of integrated players such as IOI Corp Bhd , Kuala Lumpur Kepong Bhd and SD Guthrie Bhd are backed by valuable landbank, their current gearing levels should not be a key concern to investors,' Kenanga Research pointed out. It added that firm CPO and strong palm kernel selling prices are expected to help absorb most of the cost upticks in 2025. As a result, upstream margins are expected to stay healthy. Altogether, 2025 margins should stay robust, thanks to upstream operations. Kenanga Research named IOI, with a target price of RM4.10 per share, as its big-cap pick, citing its sector-leading return on equity and declining gearing, which provides greater headroom for M&A. Among pure upstream players, Hap Seng Plantations, with a target price of RM2.40, still offers good, defensive upstream exposure, supported by over RM500mil in net cash. For the longer term, United Malacca – with a target price of RM6 – should see rising profits from newly maturing estates, while TSH – with a target price of RM1.30 – is expanding its planted area by 25% to 30% over the next three to five years. Genting Plantations Bhd with a target price of RM5.70, should also see a stronger 2Q25 contribution from its newly opened Jakarta Premium Outlet. Meanwhile, CGS International Research (CGSI Research) has lifted its CPO price forecast to RM4,200 per tonne for 2025. In a report, the research house noted that upstream players stand to benefit the most from high CPO prices. 'Our earnings sensitivity analysis shows that Genting Plantations, SD Guthrie and Hap Seng Plantations deliver the strongest earnings uplift with every 5% rise in CPO price,' it noted. With the current CPO rally starting early June 2025 driven by macro and policy shocks, CGSI Research expects upstream-focused names to benefit more significantly. 'After factoring in our revised CPO price assumption, accounting for forward commitments and softer palm kernel prices, our earnings revisions suggest Hap Seng Plantations, SD Guthrie and Ta Ann are the biggest beneficiaries from higher CPO prices under our coverage,' the research house highlighted. CGSI Research also recommended investors seeking defensive plays to accumulate agribusiness companies with high dividend yields, such as Hap Seng Plantations and Ta Ann, citing more stable earnings compared to other sectors.
The Star
a day ago
- The Star
Banking sector oversold amid tariff issue
Kenanga Research opined that the headwinds on net interest margins are less pronounced than before as funding costs ease. PETALING JAYA: The banking sector is oversold amid lingering uncertainties over tariffs, according to Kenanga Research. 'Based on past performances, we believe banks are adopting a conservative guidance on loan growth (where concerns may lie on more regionally exposed banks), while asset quality remains a minimal concern,' it said. The research house, which maintained its 'overweight' call on the sector, opined that the headwinds on net interest margins (NIMs), while still persistent, are less pronounced than before as funding costs ease. It kept its expectation for the overnight policy rate to remain steady at 3% throughout the year. For the third quarter of the year, Kenanga Research's top pick for the sector continued to be AMMB Holdings Bhd for its optimisation efforts, and emphasis on earnings sustainability to lift return on equity (ROE), with higher dividend yield prospects (6%) being a bonus. Its second pick is CIMB Group Holdings Bhd as recent share price weakness is offering a more palatable entry with 6% dividend returns to mitigate concerns over its more challenging regional operations. It also favours Malayan Banking Bhd , which continues to take market share among the big caps and is poised to lead in terms of earnings growth and dividend yield in the longer term. As for non-bank financial institutions, Kenanga Research liked general insurer LPI Capital Bhd , which is slated for special dividend yields of up to 13% on top of its core 6% to 7% yields. 'LPI will benefit from synergistic gains from its acquisition by Public Bank Bhd with industry-leading net margins offering leeway to compete more aggressively in the market,' it explained. The research house is also expecting a turnaround in valuations. Benchmarking against the KL Finance index, the sector price-to-book value (PBV) declined to a one-year low of 1.08 times in May. 'The currently depressed valuations pushed sector ROE/PBV multiple to 9.8 times. 'This marks only the second time this level has been breached outside of crisis periods (such as the 2008 global financial crisis and the 2020 Covid-19 pandemic), the first being during the collapse of several US banks in the first quarter of 2023,' it said. The research house opined that the sector is now likely at trough valuations, driven by concerns over sluggish loan growth and stubborn industry NIMs. However, Kenanga Research highlighted that the industry is in a period of unprecedented asset quality with industry gross impaired loans hovering persistently below 1.5%. This is guarded by the average bank loan loss coverage (including regulatory reserves) of 140%, which will hopefully lighten the need for hefty pre-emptive provisions as seen during the pandemic.
Focus Malaysia
a day ago
- Focus Malaysia
Demand for edible oils remains resilient and predictable
THE top palm oil producer, Indonesia, suffered poor yields in calendar year 2024 (CY24) causing palm oil prices to trade above soyabean oil for over half the year during CY24. 'As harvest is recovering this year, palm oil prices have since reversed to trade at discount against soyabean oil from Apr CY25 onwards,' said Kenanga Research. Consequently, CY25 crude palm oil (CPO) prices should ease from RM4,212 per MT in CY24 to RM4,100 in CY25 and RM4,000 in CY26 but stay firm due to overall supply tightness in the international edible oil market. A CY25 supply deficit looks increasingly likely with tightness to spill over into CY26. Oilworld's latest edible oil supply growth forecast of 2% for CY26 concurs with Kenanga's earlier view that trend-line demand growth of 3%-4% a year looks set to outstrip supply not only in CY25 but into CY26 as well unless a bumper harvest eventually emerged. Hence, our expectation of firm to elevated edible oil prices over CY25-26. Once the fastest growing oil crop, palm oil output growth started to moderate from around CY19 onwards. This is in part, due to ESG concerns over de-forestation but Indonesia was also starting to run out of good suitable land for oil palm planting while Malaysian oil palm area actually started shrinking since CY20s. Whilst valuations appear to have bottomed out and are not excessive, there is no strong upside catalyst either. Therefore, our NEUTRAL call thus hinges on firm CPO prices. Approximately 70% of edible oil made it into our food chain with c.23% as bio-fuel. As such, edible oil demand is quite visible, resilient and with trend-line demand growth of 3%-4% yearly. Meanwhile, supply is expected to grow by only 2%-3% over CY25-26; hence, edible oil prices including that of palm oil will probably stay sufficiently firm. Overall, we expect non-integrated planters to become increasingly dividend-yield plays. For larger integrated players, we expect more M&A or diversification into non-plantation businesses – hence likely to stay net borrowers. Even so, as the balance sheet of integrated players such as IOI, KLK and SDG are backed by valuable land bank, their current gearings levels should not be a key concern to investors. Margins should stay healthy. Firm CPO and strong PK selling prices are expected to help absorb most of the cost upticks in CY25; hence, upstream margins are expected to stay healthy. Downstream margins which stayed disappointingly soft in 1QCY25 is likely to remain so for the next quarter or two. Altogether, CY25 margins should stay robust thanks to upstream operations. —July 2, 2025 Main image: Palm Oil Alliance
