Monday, 4 July 2011

Solar Power: The Next Big Thing?

Everyone is going "green" now. "Environment-friendly" products will definitely rule the market in the future.

How about green energy? I think solar energy could be a next big thing in Malaysia. Malaysia is situated along the sun belt and the sun light is free! It can come to a time that every new houses built in the future will come with a solar power system on the roof! At present it is still difficult as the solar power is very expensive. However, when it becomes more popular and the production is greatly increased, it can become much more affordable.

    Solar power system

There are signs to show this. The global solar power market is expected to grow from USD350bil in 2009 to USD2,900bil in 2020. It is estimated that in 2020, Malaysia will be the second largest manufacturers of solar power related products with a market share of 17%, just behind China.

Currently there are 4 large multinational solar companies that have decided to set up their plants in Malaysia. Q cells & First Solar already started operation in Klang valley & Kulim Hi-Tech park respectively. Sun Power/AU Optronics's plant is under construction in Melaka and is expected to be completed in 2013. Bosch just announced that it will set up its 80-acres plant in Batu Kawan, Penang before the end of this year.

There is one local listed company that plans to start the solar phtovoltaic cells manufacturing business next year. Tek Seng Holdings Bhd is a company that produce PVC or plastic related products such as toys, raincoats, curtains, table cloth etc and has little to do with solar power. However, Tek Seng decided to venture into this new business of solar cells manufacturing, with the technical help from a German company Schmid. A good diversification I guess.

Here are some important points from the news in The Star.

GEORGE TOWN: Tek Seng Holdings Bhd will invest RM596mil over the next five years in solar photovoltaic (PV) cell manufacturing business, which is expected to start operations next year.

Group executive chairman Loh Kok Beng told StarBiz that the company was now building a RM94mil plant in Bukit Minyak Science Park.

“We will start production with one line for 60MW solar PV cells in the first quarter of 2012. Our plan is to gradually increase the production lines to eight by 2016.

“In 2013, we will add one more line. We will add two production lines each year in 2014, 2015, and 2016,” he said.

A new subsidiary, TS SolarTech Sdn Bhd, has been set up to undertake the new business. Tek Seng has a 60% stake in the new unit.

Tek Seng is getting its solar PV cell technological know-how from Schmid, a leading German solar power company.

Loh said the group had started negotiating for sales orders with multinational companies in China.

“TS SolarTech expects to generate RM130mil to RM170mil revenue in 2012. This means that the new business is expected to generate over 70% of the group's revenue for that year.

“About 50% of TS SolarTech's business will come from overseas while the remainder from domestic martket,” he said.

    The future is as bright as the sun?

Take a look at Tek Seng's financial results, we can see that it generated a revenue of RM168mil in year 2010, which is a record-breaking year. When the solar PV cells business kick start with only one production line in 2012, the expected revenue from this new business should be RM130-170mil if we believe what its management says. What if more lines are added later?

Another company that I know which may benefit from the solar power industry is Frontken, which is a company involved in equipment maintenance & precision cleaning business. Earlier Frontken claims that it is optimistic to get the job from Sun Power plant in Melaka which is still under construction. If successful, it can generate an annual recurring income of over RM20mil to Frontken. Just check Frontken's earning to see what this figure means to Frontken. Personally I think Frontken is a good "penny stock" at just RM0.15/share with a good potential to grow.

Any other company that can reap benefit directly or indirectly from the solar power industry boom? Please share if got any.

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