RHB maintains ‘overweight’ call on power sector; expects more solar EPCC contract flow – EQ Mag Pro
KUALA LUMPUR : RHB Investment Bank Bhd has maintained its “overweight” rating on the utilities sector as it expects electricity demand to register growth and more fourth cycle large-scale solar programme (LSS4) engineering, procurement, construction and commissioning (EPCC) contracts to be awarded.
In a note today, its analyst Sean Lim said electricity demand overall is still likely to register growth, albeit at a slower-than-expected pace due to the enhanced movement restriction order.
“Electricity demand improved 16.1% year-on-year (y-o-y) and 0.7% quarter-on-quarter (q-o-q) in 2021. Industrial and commercial consumption fell 4.9% and 0.5% q-o-q, while domestic consumption improved 10.7% q-o-q.
“We expect electricity demand to pick up, led by industrial and commercial recovery — in tandem with the gradual reopening of the domestic economy and in accordance with the 2.9% approved demand forecast under the Regulatory Period 2 (RP2),” he said.
Meanwhile, Lim noted that energy transition will remain at the forefront of the sector as utility players are expected to expand their renewable energy (RE) exposure.
In August, Tenaga Nasional Bhd (TNB) had signed 21-year LSS photovoltaic power purchase agreements (PPAs) with most of the shortlisted public listed players.
Following this, he expects more LSS4 EPCC contract flow in the coming months, as discussions with other shortlisted bidders are ongoing.
“Apart from Solarvest Holdings Bhd, players including Samaiden Group Bhd, Pekat Group Bhd and Uzma Bhd are also eyeing for a share of the pie,” he added.
However, he did note that solar panel prices remain elevated at 28 to 29 cents per watt, a huge jump from the 20 to 21 cents per watt during June 2020’s LSS4 tender period.
“The price impact will be shared between asset owners and solar EPCC contractors depending on negotiations. We believe EPCC contractors with bulk orders tend to enjoy better economies of scale, while asset owners with internal EPCC capabilities see better cost management.
“Some players have a wait-and-see approach as they believe solar panel prices will cool off,” he added.
Lim maintained his “overweight” call on the sector, with his top sector pick being TNB with a target price of RM12.49.
He continues to favour the counter for its earnings’ defensiveness under the Incentive-Based Regulation (IBR) mechanism, as well as its recent net-zero emissions pledge which further demonstrated its commitment to the energy transition journey.
Source: theedgemarkets
