This article first appeared in The Edge Malaysia Weekly on July 24, 2023 - July 30, 2023

MOST renewable energy (RE)-related counters on Bursa Malaysia had a good run in the last two months as investors await the crucial rollout of the National Energy Transition Roadmap (NETR) by the government this week.

The first phase of the NETR, which aims to position Malaysia as a regional leader in RE, will be launched on Thursday (July 27), followed by the second phase in August.

The share prices of YTL Power International Bhd, Sunview Group Bhd, Solarvest Holdings Bhd, Jentayu Sustainables Bhd, Samaiden Group Bhd, Uzma Bhd and Pekat Group Bhd have risen by double digits since early May.

YTL Power has climbed 21.4% since early May to close at RM1.31 last Friday, while Sunview and Solarvest have risen 39% and 45% to 93 sen and RM1.29 respectively in the same period.

At the same time, shares in Samaiden, Jentayu, Uzma and Pekat have increased 32%, 15%, 13% and 13% to RM1.23, 99 sen, 68 sen and 46.5 sen respectively.

Shares in Cypark Resources Bhd have jumped 7.8% from early May to close at 82 sen last Friday, while Pimpinan Ehsan Bhd’s share price has gained 7% to settle at RM1.38.

It remains to be seen how RE players stand to benefit from the upcoming NETR, as exact details have yet to be announced. Some analysts deem the government’s target of achieving a RE capacity mix of 70% by 2050 as “ambitious”, as it represents a significant increase from the 31% target by 2025 and 40% by 2035. As at end-2022, Malaysia’s RE generated about 25% of the country’s energy.

An analyst says the current rally in RE-related stocks is a result of investors’ belief that these RE players will benefit from the government’s green agenda drive, which is part of the plan to boost the economy.

“While the details are not out yet, it is normal for investors to take up positions in RE players. Although some of them are not asset owners, they could benefit from an increase in the number of RE projects,” he tells The Edge.

On July 13, Natural Resources, Environment and Climate Change Minister Nik Nazmi Nik Ahmad said the government estimated that the country would require RM637 billion in new investments, including those in RE generation capacity, grid infrastructure and energy storage, until 2050 to transition to RE.

He added that the government was looking for ways to launch an Energy Exchange with neighbouring countries to support RE exports, in a bid to boost the sector.

“Among the goals is to first secure enough RE to supply the country and then ensure we get the best value for sales abroad and allow that value to be reinvested in boosting the Malaysian RE sector,” Nik Nazmi said.

Maybank Investment Bank Research says RE exports, especially to Singapore, would increase RE project viability in Malaysia.

“With Singapore’s electricity tariffs more than double that of Malaysia, project returns could be lucrative in an environment of heightened rates,” it says in a July 12 report.

The local research firm says companies with a substantial cash pile — such as Mega First Corp Bhd (backed by Don Sahong’s strong cash flow) and YTL Power (armed with substantial disposal proceeds from Electranet and its sizeable land bank in Johor) are relatively better positioned to pursue such opportunities, if they materialise.

“With commodity prices on a downward trend, we expect investors to shun utilities that are sensitive to commodity prices, such as Gas Malaysia Bhd (retail profit is a function of gas price) and Malakoff Corp Bhd (negative fuel margins),” it adds.

The government also announced a sixfold increase in the green electricity tariff (GET) to 21.8 sen per kWH, from 3.7 sen per kWH from August.

An analyst says this hike is unlikely to benefit current RE players, except Tenaga Nasional Bhd, as they sell their RE to Tenaga. “Tenaga will then sell the power to consumers under the GET initiatives,” he tells The Edge.

Nik Nazmi also pointed out that the government did not intend to review existing power purchase agreements (PPAs) for the current LSS to align them with the recent increase in the GET. which was introduced on Jan 1, 2022, and enables users to subscribe to electricity from RE resources from Tenaga.

A key highlight of the upcoming NETR is the RM25 billion worth of projects in the first phase. These will comprise 10 national flagship energy transition projects to be developed with the participation of the private sector.

According to MIDF Research analyst Hafriz Hezry, the NETR is expected to be announced in phases, with the first phase encompassing strategic projects and initiatives such as hydrogen, solar farms as well as RE special zones.

In the second phase, he expects it to involve enablers such as legislative reforms and incentive funding that will be put through to accelerate the transition.

“We see pockets of opportunities in the RE space backed by strong government support to develop a ‘green economy’,” he says in a July 12 report.

Hafriz’s top picks include YTL Power as a RE exports play and the group’s new strategic focus on building up RE and data centre capacity. He also likes Tenaga, as the company could be a beneficiary of grid investments to accommodate variable RE growth in the mix.

“We also like Ranhill Utilities Bhd. Although the company’s core business is in water operations, it has exposure to power generation assets and is beefing up efforts to grow RE capacity via the Large Scale Solar and Corporate Green Power programmes.

“Broadly, we believe RE EPCC (engineering, procurement, construction and commissioning) players such as Solarvest, Samaiden, Sunview and Pekat will also benefit from the country’s RE drive,” Hafriz says.

Amid the excitement in the RE space, more companies are taking a bet on it, for example, Seal Inc Bhd, whose core business is property development. It is in the midst of raising RM16.19 million through a private placement, the proceeds of which will be used to acquire or invest in new viable businesses, including in the RE-related sector.

Seal announced that the proposed placement would be taken up by businessman Aaron Chen Khai Voon, who is co-founder and substantial shareholder of Genetec Technology Bhd, to emerge as a strategic investor in Seal.

“With the introduction of the subscriber (Chen) as a strategic investor, our group will be able to tap the expertise of the subscriber, who has experience and knowledge in the RE sector,” Seal said.

Then, there are those companies that have ventured into the RE-related sector such as Uzma, Yinson Holdings Bhd and Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE). These companies are mainly in the oil and gas sector but have made their way into the RE space.

For instance, Uzma bagged a 50mw solar farm contract under the LSS4 and also made its entry as an EPCC for solar farms.

Besides Uzma, companies that are not pure-play REs that have received LSS contracts include Ranhill, Tan Chong Motor Holdings Bhd, MK Land Holdings Bhd, Advancecon Holdings Bhd and Gopeng Bhd.

Meanwhile, MMHE is the EPCC for the country’s first carbon capture storage plant, worth RM4.5 billion, which could make the company a proxy of the RE sector. 

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