Sunday, 9 August 2020

Large Scale Solar (LSS): What To Expect

Large Scale Solar Malaysia - Portfolio and Projects | Solarvest

Malaysia targets at least 20% renewable energy consumption by year 2025. Large Scale Solar (LSS) program is one of the projects which plays a crucial role in achieving this target.

At the end of 2016, only 2% energy comes from renewable source.

LSS was first introduced in March 2016. So far 3 rounds of bidding have been completed. Bidding process of LSS4 is currently under way and the result is expected by the end of this year.

Successful bidders have to build, own and operate (BOO) the large solar farms. A power purchase agreement at a fixed rate for 21 years will be signed with TNB.

There are many listed companies planning to diversify and share the cake of this renewable energy business. I read that Vizione, Pestech, OSK and ILB have plans to bid for LSS3.

Of course all of them failed as only one listed company won the bid in LSS3, which was Cypark. 

The table below shows the winners of LSS3.

It was reported that 719 companies have participated in LSS3 bid, and only 10 companies came out as winners. The competition was extremely fierce.

A total of 491 MWac capacity was awarded in LSS3. Only 5 JVs companies succeeded and each of them got a sizable 100 MWac contracts. Cypark paired up with another local company but I'm not sure about its shareholding percentage in this JV.

There are not many listed companies succeeded in LSS bidding in the past. For LSS1, only TNB (50 MWac), Mudajaya (49 MWac), ILB (10 MWac), Malakoff/DRBHICOM (50 MWac) and SCOMI JV (30 MWac) turned out to be winners.

LSS1 could generate 451 MWac of electricity and its commercial operation should have started since 2017/2018.

The bidding and announcement of winners for LSS2 were completed in 2017. Successful listed companies include Cypark JV (30 MWac), TNB (30 MWac) and Suria JV (2 MWac). Atlantic Blue Sdn Bhd who won 3 projects under JV totaling 30 MWac, is a 45%-held associate company of Chin Hin Group at that time.

After restructuring, Altanlic Blue Sdn Bhd is now a wholly owned subsidiary of Solarvest Holdings Berhad, and Chin Hin holds 33.6% of Solarvest shares.

Most of the 500 MWac LSS2 projects were won by private companies. The Commercial Operation Date (COD) of LSS2 is expected to be 2019/2020.

After 3 rounds of LSS bidding, a total of approximately 1500 MWac has been awarded. LSS4 will offer another substantial 1000 MWac with maximum 50 MWac for each company/JV. So, bidders will have a much higher chance to succeed in LSS4.

Solar Farms in Malaysia - What are the Benefit/Disadvantages ...

According to The Edge report in Dec 2018, the estimated investment per megawatt is about RM5mil to RM6mil. A 30 MWac project will require RM150mil to RM180mil.

Solar farms need huge land and the investment might be relatively high. However, so many companies are joining the bids so I guess the potential return on investment should be good.

I read that the solar tariff for LSS2 was 33.98sen per kilowatt hour but I don't know how will this translate to the revenue and profit.

The Edge wrote in 2017 that on average, 1MWdc of solar capacity in Malaysia generates about 1200 MWdc hours per year. If the tariff is 40sen per kWh, 1MWac solar can generate a revenue of at least RM480k per year (0.40 x 1000 x 1200). Note: DC to AC losses range from 5-15%.

However, a simple check on a few LSS farm operators suggests that The Edge's calculation seems to underestimate the revenue contribution.

ILB & Mudajaya are successful bidders in LSS1. Their solar farms are wholly owned and their operations are not that complicated. Mudajaya's power segment includes the failed India IPP investment and I'll exclude India's loss here. 

According to Cypark's FY19 annual report, it has a total of 47.17MW capacity of solar energy. Since it's widely regarded as the pioneer in renewable energy, I should include it here.

Assume the tariff is 40sen per kWh (which I think is quite high)

ILB (11 MWac)
Base on The Edge: 11 x 480k = RM5.28mil per year, or RM1.32mil per Qtr

Actual results = ~RM2.6mil per Qtr
FY20Q1: Revenue RM2.57mil (RM0.23mil/MW/Qtr), PBT: RM0.66mil, PBT margin: 25.5%
FY19Q1: Revenue RM2.70mil (RM0.25mil/MW/Qtr), PBT: RM0.67mil, PBT margin: 24.7%

Mudajaya (59 MWac)
Base on The Edge: 59 x 480k = RM28.32mil per year, or RM7.08mil per Qtr

Actual results = ~RM14mil per Qtr
FY20Q1: Revenue RM13.1mil (RM0.22mil/MW/Qtr), PBT: RM4.21mil, PBT margin: 32.1%
FY19Q1: Revenue RM14.3mil (RM0.24mil/MW/Qtr), PBT: RM4.29mil, PBT margin: 29.9%

Cypark (47.17 MWac)
Base on The Edge: 47.17 x 480k = RM22.6mil per year, or RM5.66mil per Qtr

Actual results: ~RM11mil per Qtr
FY20Q2: Revenue RM11.3mil (RM0.24mil/MW/Qtr), PBT: RM5.0mil, PBT margin: 44.2%
FY19Q2: Revenue RM10.9mil (RM0.23mil/MW/Qtr), PBT: RM3.0mil, PBT margin: 27.5%

It seems like the actual revenues are 2x higher than The Edge's estimation.

From such a rough calculation from the actual revenues, the average revenue for large scale solar farm is quite consistent at about RM0.24mil per MWac per quarter, and PBT margin approximately 25-30%. The higher margin for Cypark in FY20Q2 is due to a "change in the estimate of useful lives of solar plants".

If we annualize the figure, the revenue will be approximately RM1mil per MWac per year.

So if a company successfully bid for LSS4 with a capacity of 30MWac, then we can expect the solar farm to contribute a recurring revenue of around RM30mil annually, with an annual PBT of around RM7.5mil to RM9mil once it is commissioned 1-2 years later.

This is just my very simple estimation. Revenue and profit will be affected by the tariff in power sales agreement, scale & location of solar farm, finance cost, land cost, depreciation, weather, sunlight etc.

To huge companies like TNB & DRBHCOM, these figures might be peanut to them. However, to small companies especially those who are struggling to stay profitable, this might be an easier route to obtain consistent & recurring income for the next 21 years.

The real winner might be companies like Solarvest, who not only bid for LSS and won in LSS2 through subsidiary Atlantic Blue Sdn Bhd, but also design, build (EPCC), operate, service and maintain the solar farms for others.

Solarvest - Turning Sunlight into Investment | Solar Energy in ...

That's why market gives Solarvest such a high PE of around 30 until Cypark's CEO felt that his company's share price did not do justice to its earning.

Well, Cypark is also capable of large scale solar farms EPCC jobs.

Solarvest was just listed in ACE market on 26 Nov 2019 with an IPO price of 35sen. It rose 116% on its debut day to close at 75.5sen. 

With current share price of RM1.31 and estimated trailing 4 quarters EPS of 4.5sen, its estimated PE is around 30.

Besides Solarvest, actually there are quite a number of listed companies which have the capability to carry out EPCC for solar farms. 

KPower is one of them as its MD mentioned that the company will not only bid for 30MWac in LSS4 as concession holder, but also establishing partnerships with other companies who are bidding for total 300MWac to be their preferred EPCC contractors.

Those in energy as well as construction sectors will surely have an eye on LSS4, such as TNB, YTL Power, Malakoff, Mudajaya, MFCB, Jaks, JAG, Pestech, Uzma etc.

As an unprecedented 1000MWac which doubles the capacity in LSS3 will be awarded in LSS4, publicly listed bidders should have a higher chance of securing a contract.

We should see the winners by the end of this year.


  1. Cypark is selling cheap now, i think it is undervalued.
    Cypark's recurring income from concessions will provide steady cash flow in years to come.

    1. Yes, Cypark is really worth a look. I've been watching it for more than a year.

  2. But cypark doesn’t have positive cash flow

    1. Yes, that's why I'm still monitoring this stock. LSS and WTE need huge investment, and the latter keeps on being delayed...

  3. May I know the revenue and PBT you used here are solely from solar farm related?

    1. Yes, but it's just a very rough estimation

  4. This comment has been removed by the author.

  5. Why you didn't invest at solar company?

    1. Hi, currently in my portfolio Jaks and MFCB are considered solar companies, though they are not in EPCC. The share price of those EPCC companies are quite high for me, even though they have retreated. I might consider KPower when the Serbadk saga is cleared.