Solar sector fights for a place in the sun

Chow: Samaiden is eyeing any green technology and sustainability projects that are in line with the group’s direction.

MALAYSIA’S solar sector is becoming more competitive, with many players bidding for government programmes such as the fifth large scale solar (LSS5).

A handful of new initial public offerings (IPOs), including Northern Solar Holdings Bhd, are joining the fray of Bursa Malaysia-listed solar engineering, procurement, construction and commissioning (EPCC) players.

As the domestic market gets more crowded, more listed companies in the solar energy sector are venturing into new areas to maintain growth.

The first phase was when the companies that started out as EPCC contractors morphed into asset owners, meaning they became owners of solar farms under government programmes, earning tariffs for energy sold into the electricity grid.

This balanced out their earnings as it provided them with recurring income to bolster their sometimes lumpy contract- related earnings.

For Solarvest Holdings Bhd, the biggest player in the sector by market cap of RM1.04bil as at Sept 12, one of its strategies is to embark on mergers and acquisitions (M&As).

In July, Solarvest roped in Daniel Ruppert as chief investment officer (CIO), a role created to execute its way forward.

In his first media interview as CIO, he says there are three key mandates under his purview.

“We are committed to achieving a 1GW clean energy asset base by 2028 through greenfield and brownfield investments across South-East Asia.

“As we enhance our project capabilities, we aim to lead the regional clean energy transition and deliver sustainable growth across various verticals, including solar, wind, hydropower, biogas/biomass, energy storage, energy efficiency and the electric vehicle ecosystem.

“The technology expansion will be done on our own as well as with co-investment alliances, joint ventures or M&As,” Ruppert tells StarBiz 7.

Solarvest chief investment officer Daniel Ruppert

Similarly, Samaiden Group Bhd is also looking at M&A potential to broaden its income stream.

“M&A was all the while in our plan. We are not specifying any country or solar projects only.

“(We are eyeing) any green technology and sustainability projects that are in line with our group direction. No specific business as long as there is good potential,” says group managing director Datuk Chow Pui Hee.

Samaiden already has the financing facilities at its disposal. It recently announced plans to raise up to RM1.5bil via two sukuk programmes to fund development of renewable energy (RE) or green technology projects,” she adds.

Samaiden is also looking to expand its overseas presence, having established companies in Vietnam, Cambodia, Singapore and Indonesia. “Other countries are in the development stage,” Chow says.

But many believe listed EPCC players like Solarvest, Samaiden and even Pekat Group Bhd are trading at lofty valuations with high price-earnings (PE) multiple of more than 30 times.

As such, these companies need to deliver on earnings growth, which explains why they are aggressively trying to expand.

Solarvest is currently trading at a PE ratio of 31.3 times, which is higher than most peers. The company’s P/NAV ratio of 3.8 times is higher than most peers.

Pekat has a PE of 37.5 times and P/NAV of 4 times while Samaiden has a PE of 28.7 times and P/NAV of 3.4 times.

It would seem challenging for these companies to continue growing earnings to justify the high valuations.

Chow is unperturbed.

“In terms of valuation, it is very subjective to the investors’ appetite on the industries that they prefer and they think have potential. For me, in terms of company growth, it is very positive and expected to progress well,” she says.

Meanwhile, Ruppert points out that Solarvest’s PE ratio for financial year 2024 (FY24) aligns with the industry average.

“Forward PE ratios for FY25 and FY26 are higher compared to competitors, signalling that the market has positive market sentiment and expectations for Solarvest’s future earnings growth.

“Solarvest is well-positioned to sustain earnings growth, supported by a strong influx of EPCC jobs,” he explains.

As of September 2024, Solarvest’s total order book stands at RM582mil, comprising RM340mil from Corporate Green Power Programme (CGPP) EPCC projects, with the remainder from commercial and industrial (C&I) rooftop EPCC projects.

“With CGPP projects slated for completion by the end of 2025, this order book will support us through FY25 and FY26.

“Beyond that, we aim to replenish our pipeline with projects from the LSS5 programme, for which we have already submitted tenders and expect awards by January 2025. Additionally, our C&I EPCC projects contribute a steady RM200mil annually.”

His other mandate involves managing and optimising Solarvest’s clean energy asset portfolio to ensure sustainable growth and profitability, and preparing for divestment to fund managers or independent power producers.

Solarvest is also engaged in asset ownership and development, including selling electricity through 25-year PPAs from its LSS4 assets, which will contribute RM23mil revenue annually.

Ruppert aims to increase the contribution of recurring income from 9% to 30% in the next two years.

“We are replicating our successful approach for LSS4 and expect similar success for LSS5 which is double the size (2GW versus 1GW),” he says.

Ruppert is also looking at strengthening Solarvest’s footprint in Asia-Pacific, targeting markets such as Taiwan, Indonesia, the Philippines, Vietnam, Brunei, Singapore and Thailand.

“We are targeting 200MW from regional markets in FY25,” he says.

Fundraising will also be Ruppert’s key responsibility as he will be tasked to engage institutional and strategic investors to support Solarvest’s expansion and secure capital for its 7.8GW RE pipeline.