Maybank turns ‘neutral’ on Malaysia’s renewable energy sector, says valuations fair
Daphne Yow
MAYBANK has downgraded Malaysia’s renewable energy sector to “neutral”, but said the current valuation for renewable energy players under its coverage “seems fair”.
In a report on Thursday (Jul 6), the brokerage noted that the engineering, procurement, construction and commissioning (EPCC) order book of most renewable energy companies will be exhausted as the Large Scale Solar 4 (LSS4) programme begins commercial operations by end-2023.
It now has a “hold” call on renewable energy solutions companies Solarvest and Cypark Resources, with target prices of RM1.22 and RM0.77, respectively.
Maybank also expects the sector’s earnings growth to peak in the second half of 2023. It said this would be mostly supported by the remaining LSS4 projects, solar works for the rooftops of residential, commercial and industrial buildings, as well as other projects such as biomass and biogas.
The sector is also awaiting tender award from the Corporate Green Power Programme (CGPP), an 800 megawatt (MW) virtual power purchase agreement between a corporate consumer and a solar power producer for energy supply.
In November 2022, Malaysia’s Ministry of Energy and Natural Resources released 600 MW of solar quota under the CGPP. This was later raised to 800 MW in March this year.
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The programme allows corporates to use renewable energy for their business operations, and let solar power producers own new solar assets or replenish their solar EPCC order book. Contracts are expected to be awarded from July or August 2023, Maybank understands.
The brokerage expects easing cost pressures and higher revenue for the renewable energy sector, due to cheaper solar-related materials and the lifting of a renewable energy export ban, respectively.
The price of polysilicon, a key raw material in solar cell production, has been falling since early 2023 to US$12 per kilogram, near 2020 levels. Maybank said it expects this to contribute positively to the internal rate of return for new solar projects.
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The International Energy Agency has predicted that global solar photovoltaic manufacturing capacity will double in 2023 and 2024, up from 450 gigawatts in 2022, with China accounting for over 95 per cent of new facilities throughout the supply chain.
Malaysia’s lifting of the renewable energy export ban will also allow renewable energy players to generate more revenue from the local power purchase agreement system over and above market rates. The ban was introduced in October 2021.
Maybank is anticipating the removal of the ban to be finalised by H2 2023, as the government aims to unveil two new national strategic energy road maps, potentially in end-August 2023.
The two road maps are the National Energy Transition Roadmap and the Hydrogen Economy and Technology Roadmap.
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