Last week, we organised a half-day ESG webinar on the renewable energy sector. The session kicked-off with an industry overview presented by aNew Energy, followed by guest corporate speakers from SAMAIDEN, YINSON and SLVEST. Overall, our takeaway from the session was positive. Globally, the industry trajectory is expected to be positive over the long run boosted by international investors and governments’ concerted efforts to encourage investments in growing this segment. As a result, the technology within the sector will continue to improve and coupled with increased competition is driving cost down. Meanwhile on the more domestic front, the Malaysian government has also set a national target of hitting 20% renewable energy generation by 2025 (from c.2% in 2020). This is expected to lead to a huge surge in new renewable energy capacity in the coming years, mostly driven by solar. As for ESG-reporting, at this juncture, ESG-reporting for the sector is still not extensive, but we continue to favour the sector for its inherent environmental benefits which far outweigh the adverse impacts of traditional energy sources. For stock picks, we have an OUTPERFORM call on YINSON (TP: RM6.95), although we have yet to price in any contributions from its renewable energy ventures, while SAMAIDEN and SLVEST are NOT RATED.

Last week, we organised a half-day Renewable Energy ESG webinar led by C-suites from key local listed players, namely Yinson (JJ Chai, Director of CEO's office), Solarvest (Davis Chong, Group CEO) and Samaiden (Ir. Chow Pui Hee, Group MD), as well as an industry expert from aNew Energy (Camillus Yang, MD & CFO). The webinar began with Camillus Yang of aNew Energy shedding light on the regional dynamics and systemic trends of renewable energy, particularly the reason for rising interest in solar and wind energy. This was echoed by our listed corporate speakers detailing their plans for RE within Malaysia and abroad as well as their outlook on this fast-rising industry. Below are our key highlights.

A bright and upcoming industry. Renewable Energy (RE) is expected to make up 69% of the global capacity mix by 2050 (from <30% currently), according to BloombergNEF and IEA. The new reform will be led by wind and solar energy which would make up 56% by 2050 (from c.10%) currently, while traditional gas and coal appear to have already peaked in 2020. Geographically, the APAC region is poised to lead investments in new capacity over the next 30 years, with the rest of APAC (which excludes China and India) expecting USD1.9tr to be invested.

Locally, Malaysia is targeting a 20% RE ratio by 2025 while the Association of Southeast Asian Nations (ASEAN) ministers have set a target of 35% RE in installed power capacity by 2025. Based on the Malaysian Generation Development Plan 2019, the electricity demand is expected to grow at 1.8% p.a over the next 11 years with 9,321MW of new capacity required to meet demand growth. As such, the increase demand will be led by rising supply of RE to 23% (from c.2% in 2020) by 2025, while thermal capacity share will reduce to 70% (from 82%), which would result in an estimated annual system cost of RM35.2b in 2020 to RM45.4b in 2030.

Source: Kenanga Research - 8 Mar 2021