This article first appeared in The Edge Malaysia Weekly on November 21, 2022 - November 27, 2022

TO protect its profit margins as solar panel prices go through the roof, coupled with the stronger greenback, Samaiden Group Bhd has made a tactical move to switch its transaction currency from the US dollar (USD) to Chinese renminbi (RMB).

Group managing director Chow Pui Hee says over the years, most solar companies have been buying solar panels in USD. But in June, Samaiden had started to sign some contracts with its Chinese vendors, which allow the company to pay them in RMB.

“The timing was good because the USD had (strengthened a lot) since September. Subsequently, some of our peers followed suit (switching the currency). The move has reduced our exposure to the greenback, while our suppliers have nothing much to lose because their cost is in RMB any­way,” she tells The Edge in an interview.

Half of Samaiden’s solar panel purchases are now transacted in USD and the rest in RMB.

For perspective, most solar panels being used in Malaysia are imported from China. Although Malaysian factories also produce solar panels, these are meant for the export markets such as the US and Europe.

Notably, the US has been imposing anti-dumping duties on solar modules from China. Therefore, some of the Chinese players have set up operations in Malaysia and Vietnam to serve their respective export markets.

Currently, there are five major top-tier solar panel players in China, namely JinkoSolar Holding Co Ltd, JA Solar Holdings, Canadian Solar Inc, LONGi Green Energy Technology and Trina Solar Co Ltd.

Chow reveals that most of the group’s transactions in USD took place in the first half of the year, whereas the transactions in RMB were mainly done from June onwards.

“For the financial year ended June 30, 2023 (FY2023), we expect that the majority of our transactions will be made in RMB. Fortunately, all the five major Chinese solar panel makers are willing to trade with us in RMB. We believe this would offset the impact of solar panel prices, should they continue to rise further,” she says.

Having said that, Chow admits that the currency switch is just a defensive move, as it would only allow Samaiden to mitigate the impact of foreign exchange (forex) risk, and it does not change the fact that solar panel prices are still higher than in 2019 and 2020.

“Our net margin is very thin at the moment. We need to do something about it to protect our margin. While the currency switch will not directly improve our margin, at least it could prevent it from declining further,” she remarks.

Samaiden saw its earnings double from RM5.92 million in FY2021 to RM11.93 million in FY2022, thanks to an increase in the number of projects and their contract sum. However, the group’s net margin had declined from 11.1% in FY2021 to 7.9% in FY2022.

In the first quarter ended Sept 30, 2022 (1QFY2023), Samaiden saw its net profit grow 18% year on year to RM2.44 million. Its profit margin stood at 6%.

Chow points out that Samaiden will carefully monitor the foreign currency risks, given the volatility in the USD and its impact on the group’s operations. But if circumstances warrant it, the company could “easily switch back” to using USD.

“While we have been using RMB for transactions with Chinese suppliers, we are flexible on whether to use the USD. Ultimately, it depends on whether we can get any advantage from the use of the RMB or the greenback,” she reiterates.

Chow and her husband Fong Yeng Foon — executive director and co-founder of Samaiden — own a 56.7% stake in the company. Tokyo-listed engineering firm Chudenko Corp is also a substantial shareholder of Samaiden with a 15.15% stake.

Chow believes the Chinese solar panel makers are in a favourable position, as they have been selling to their customers in USD, which has appreciated against the RMB. In other words, not only are they gaining from higher solar panel prices, but also the stronger greenback.

Today, prices of solar panels from China are about 26-27 US cents per watt. In 2018, the prices were about 30 US cents per watt. Subsequently, they dropped to about 18 US cents per watt towards the end of 2020.

“Solar panel prices continued to recover gradually from 2021 onwards, increasing by a few US cents every couple of months. In fact, at end-2021, due to the shortage of coal and the energy supply glut in China, solar panel prices had spiked to as high as 31 US cents per watt. Many industry players anticipate the prices to soften to 24 US cents next year,” she says.

Samaiden is principally involved in the engineering, procurement, construction and commissioning (EPCC) of solar photovoltaic (PV) systems and power plants. Its other business activities include the provision of renewable energy (RE) and environmental consulting services, as well as operation and maintenance (O&M) services.

Samaiden’s website shows that its clients include Malakoff Corp Bhd, Taliworks Corp Bhd, Mattan Bhd, YTL Cement Bhd, Top Glove Corp Bhd and Luxchem Corp Bhd.

Shares of ACE Market-listed Samaiden have risen 11% year to date to close at 72 sen last Thursday, giving it a market capitalisation of RM277.2 million.

At a time when the solar companies are starting to buy China-made solar panels in RMB, what does that say about the internationalisation of the Chinese currency? Amid the rising US Federal Reserve rate and the strengthening of the USD, will the RMB be able to gain ground as a dominant trade settlement currency?

According to Sunway University Business School professor of economics Dr Yeah Kim Leng, a settlement currency should not exhibit wide swings, nor should it be volatile. Otherwise, importers, exporters and investors will find it hard to conduct cross-border activities.

“A volatile settlement currency will mean higher costs due to hedging and risk premium costs. For these reasons, trade between China and its trading partners will gravitate towards greater use of the RMB especially in long-term contracts,” he tells The Edge.

Yeah adds that China’s promotion of digital yuan as bilateral trade payment and settlement systems will also accelerate the use of RMB in international trade, an inevitable trend as China’s trade with the rest of the world increasingly dwarfs the US’.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie says the USD’s share of the world’s forex reserves has been falling gradually, as the structural changes in world economic and financial order, as well as the evolution of financial technology, have weakened the dollar’s market share in global cross-borders payment systems.

“Will the RMB’s rise challenge the USD’s dominance? Although the share of RMB held as reserves more than doubled to 2.88% in 1Q2022 from 1.08% in 4Q2016, its increasing share is constrained by the country’s relatively closed capital account,” he adds.

Lee says to be an internationally-accepted global reserve currency, the currency of a particular country should not only carry a significant weight of economic and financial, but is also a reliable and stable unit of exchange. “The fundamental value of the currency must be backed by the stability of the economy and financial system, along with the implementation of track records of sound, transparent and predictable policies.”

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