• Keep OVERWEIGHT; Top Picks: Tenaga Nasional (TNB), YTL Power, and Solarvest. We are positive overall on the National Energy Transition Roadmap (NETR) as it paves the way to expedite energy transition here, lifting the renewable energy (RE) projects’ potential returns via energy exports. Key successful elements: Diligent execution, stringent policy implementation, and ability to bridge the funding gap.

• NETR launch. The NETR development is divided into two parts. Part 1 outlines the 10 flagship catalyst projects and impact initiatives based on six energy transition levers, ie energy efficiency, RE, hydrogen, bioenergy, green mobility, and carbon capture, utilisation & storage (CCUS). Part 2 is likely set for end August, focusing on establishing a low-carbon pathway, energy mix and emissions reduction targets, and the enablers needed for energy transition. A pilot RE zone will be established, encompassing an industrial park, zero-carbon city, residential development, and data centre.

• TNB taking key role. We believe TNB is one of NETR’s key beneficiaries, largely from the potential earnings upside from higher transmission & distribution (T&D) assets (including wheeling charges) and potential strong ramp-up in domestic RE presence. It plans MYR35bn in investments in 2025-2030 for the grid. With the potential RE capacity expedition here, a grid upgrade charge and wheeling charges are likely to be tabulated under a new scheme to compensate TNB for utilising its T&D assets. The company is likely to be involved in at least 3GW worth of RE projects announced – 500MW solar parks and 2.5GW hybrid hydro floating solar projects – that could uplift its current RE capacity of 3.9GW.

• Solar contractors are the direct beneficiaries. Given that there is an aggressive expansion in domestic RE capacity, we see the local solar EPCC contractors such as Solarvest, Samaiden, Sunview, and Pekat as direct beneficiaries. Reservoir Link, a sub-contractor and mounting structure provider, will also benefit from higher job flows in our view. Assuming an EPCC contract is valued at MYR2.5m/MW, a minimum 4GW solar capacity investments could translate to c.MYR10bn worth of job opportunities for such players in the next few years. We believe this is a structural uplift to these operators, given that previous large-scale solar (LSS) or Corporate Green Power Programme (CGPP) rollout is only 800- 1000MW/cycle. Besides this, the solar rooftop leasing and other initiatives by developers could also trigger more residential rooftop photovoltaic (PV) installations. Having said that, we are still unsure of these project timelines and whether all of these projects will be flowing down to these players.

• RE Zone/industrial park. A pilot RE zone will be established encompassing an industrial park, zero-carbon city, residential development and data centre. We believe rising data centre investment could potentially benefit data centre developers and contractors such as YTL Power, Gamuda, MN Holdings, and Sunway Construction (SCGB MK, BUY, TP: MYR2.05). We are upbeat with developers’ participation in the NETR, provided they can sort out the capex/financing required (potentially via JVs).

Source: RHB Securities Research - 28 Jul 2023