• Keep BUY, new MYR1.89 TP from MYR1.86, 93% upside.After updating the ESG scoresheet for the energy sector stocks under our coverage, we raise our ESG score for Wasco to 2.9 from 2.8 – and adjust our TP accordingly. We like Wasco for its clear near-term ambitious targets as well as involvement in the bioenergy space.

• The positives. Wasco targets to achieve operational net-zero emissions by 2026 through an ambitious strategy focusing on aggressive emissions reduction and carbon offsetting. This dual approach includes substantial investments in nature-based solutions like tree planting. The company completed its first tree-planting programme in 2022, which began in 2021 – aiming to offset about 7.6k tCO2e (2020 baseline) of residual emissions by planting about 113.7k trees. In addition to tree planting, Wasco is enhancing its renewable energy (RE) sources within its energy mix, setting a target of having 30% made up of green electricity by 2024. Additionally, we view Wasco’s bioenergy services positively. In FY23, bioenergy accounted for 11% of the group's business, thereby strengthening its commitment to sustainable energy. Notably, the group’s total greenhouse gas (GHG) emissions in 2022 nearly doubled to 25,224 tCO2e due to expanded reporting undertaken to cover all entities, in contrast to tracking the emissions of only the energy solution services division before this.

• Change of reporting scope. Notably, the group’s total GHG emissions in FY22 nearly doubled to 25.2k tCO2e, reflecting an expanded emissions tracking that now includes all entities compared to the previous scope of only the energy solution services division. We also appreciate Wasco’s focus on measuring emissions intensity, which decreased by 20% from FY22 to FY23, using tCO2e per man-hour as a unit measurement.

• Areas for improvement. While Wasco’s commitments are promising, there is still room for improvement in its ESG strategy, particularly regarding Scope 3 emissions. Disclosing Scope 3 emissions data would provide a clearer picture of its carbon footprint and align its reporting with global standards.

• ESG score update. Following recent adjustments to our sector ESG scoresheet, Wasco’s ESG score has been revised upwards to 2.9 from 2.8, reflecting the recognition of its ambitious short-term net-zero target and strategic advancements in renewable energy integration. 

Source: RHB Securities Research - 18 Nov 2024