Investment Highlights

• NETR Phase 1 was launched yesterday. Phase 1 of the National Energy Transition Roadmap (NETR) was launched yesterday. The roadmap outlines the government’s plans to achieve a RE target of 70% by 2050F. The NETR is expected to generate investments of more than RM25bil and create 23,000 jobs in total. Also under the NETR, more than 10,000 carbon equivalents of emissions would be reduced per year. Phase 2 of the NETR, which covers the legislation framework, will be launched in August 2023.

• Solar is the main beneficiary. We believe that solar companies would be the main beneficiary of NETR. The government plans to install rooftop solar systems on government buildings. Also, the administration would like to see rooftop solar systems installed nationwide. In addition, households in new townships would be given the opportunity to lease rooftops for solar systems. The latter would require the participation of the township developer.

• Households to lease out rooftops for solar systems. Sime Darby Property will be carrying out the construction of 4.5MW of solar capacity in 450 homes in Elmina City and Bandar Bukit Raja. Up to 10kW of solar capacity per house will be leased out with off-takers being high-demand users from the commercial or industrial sectors. The market for rooftop solar systems in Malaysia is 332GW in total.

• A RE (Renewable Energy) Zone will be set up. The RE Zone will be held under Khazanah Nasional and carried out by UEM Group and ITRAMAS. The RE Zone will have a capacity of 1GW. It will be the 8th largest RE Zone in the world. In the zone, there will be companies involved in the entire energy supply chain from generation to storage. There will also be data centres, residential developments and industrial parks.

• Large-scale solar (LSS) parks will be developed by Tenaga Nasional (TNB). TNB will develop centralised LSS parks in partnership with SMEs, cooperatives and state economic development corporations. The parks will have capacity of 100MW per site across 5 sites in several states. Incidentally, TNB will also develop 2,500MW of hybrid hydro-floating solar systems at its hydropower plants to increase RE generation to 24 hours.

• Focus is also on hydrogen. Apart from solar, the government would be focusing on hydrogen and carbon capture utilisation and storage systems. The main player in hydrogen would be Sarawak. SEDC Energy plans to implement 3 integrated projects to produce green hydrogen. These include the development of a plant in Kuching by 2025F for domestic use and 2 plants in Bintulu by 2027F for exports.

• Central Electricity Exchange, operated by a single buyer, will facilitate electricity exports. The government will allow cross-border RE trade through the establishment of an electricity exchange system. This will be operated by a single market aggregator. The entity, which will be the single market aggregator, was not disclosed. Other than this, there were not many details on the exports of electricity. Recall that Singapore plans to import 4,000MW of low-carbon electricity by 2035F.

• Need to upgrade the grid. An issue is the capacity of the grid network. We understand that the grid can only take an additional 2,000MW to 3,000MW of electricity before it is overwhelmed. The capex of RM637bil under the NETR will not only consist of investment in solar capacity but also the reinforcement of the grid and distribution network.

• We maintain Overweight on the power sector. We believe that all of the power companies in our coverage would benefit from NETR as they have exposure to solar. TNB has the biggest solar operations among the companies in our coverage. TNB’s solar rooftop unit, GSparx aims to secure contracts worth 145MWp in FY23E. GSparx’s revenue is expected to be RM70mil in FY23E. We have BUYs on TNB (Fair value: RM11.80), Mega First (Fair value: RM3.60) and YTL Power (Fair value: RM1.50).

Source: AmInvest Research - 28 Jul 2023