The Malaysian Renewable Energy Roadmap (MyRER) and the latest National Energy Transition Roadmap (NETR) lay out pathways to achieve Malaysia’s Paris Agreement NDC and Net-Zero 2050 ambition. Decarbonising Malaysia’s power system is crucial to achieve the targets - some 9GW RE capacity addition is planned under the MyRER, while NETR’s more aggressive targets will require a massive ~60GW more. Meanwhile, Malaysia’s RE export policy is aimed at positioning Malaysia to lead the regional energy trade and to capitalize on low-hanging fruits. We see strong catalysts from a firm policy layout as well as improving growth and ESG profile; re-affirm our Overweight rating on Power & Utilities on the back of the energy transition. Among key plays into the theme are TENAGA (BUY, TP: RM17.30), MALAKOF (BUY, TP: RM1.05), YTLPOWR (BUY, TP: RM6.39) and SAMAIDEN (BUY, TP: RM1.30).

Sealing a commitment to the energy transition. The Paris Agreement marked an important milestone in Malaysia’s commitment to address climate change. As part of its Nationally Determined Contributions (NDC), Malaysia has unconditionally pledged to reduce its greenhouse gases (GHG) emissions intensity by 45% by 2030 and committed to a net zero target by 2050. However, Malaysia’s heavy reliance on fossil fuels is a key challenge and in the power sector, Malaysia relies heavily on coal-fuelled power plants because of legacy policies to pursue energy diversification.

Abundant opportunity for domestic RE sector. Under the MyRER, Malaysia laid out its mid-term plan to decarbonize the power sector with a target of 31% RE capacity mix by 2025 and 40% by 2035. This provides a clear pathway to achieve the 2030 NDC and importantly, creates opportunities for domestic RE players especially in the solar and hydro space, which form the bulk of the country’s RE resource. By 2035, 9.5GW of RE capacity is projected to be added to the power system, more than doubling 2020 levels.

A more aggressive path to net-zero 2050. Underpinning the sector’s prospects further, the Government, as part of the upcoming NETR, is pursuing a more aggressive target of 70% RE capacity mix by 2050, almost doubling the RE mix targeted in 2035. On our estimates, this would require a massive ~60GW of additional RE capacity, which we expect to come predominantly from solar. This is accompanied by enhanced mechanisms and incentives to support growth in RE capacity.

Positioning to lead regional energy trade. To position Malaysia for future regional energy trade, the Government has lifted the RE export ban with an export framework and open grid access mechanisms launched. Singapore is a low-hanging fruit targeting 6GW of electricity imports by 2035, which provides domestic RE players the opportunity for capacity supply and to capitalize on higher green tariffs in Singapore.

We re-affirm our Overweight call on Power & Utilities, premised on a strong, multi-decade theme predicated on the NETR. RE EPCC players such as SAMAIDEN (BUY, TP: RM1.30), SOLARVST (N.R.) and SUNVIEW (N.R.) are among beneficiaries. TENAGA (BUY, TP: RM17.30) as the grid monopoly is positioned to benefit from increased grid capex to accommodate higher RE integration and strong demand from data centres. Asset owners such as MALAKOF (BUY, TP: RM1.05) and YTLPOWR (BUY, TP: RM6.39) stand to benefit from higher demand for domestic and export driven RE generation capacity.

Source: TA Research - 17 Oct 2024