Huge renewables opportunities remain in ASEAN: Maybank IBG report

Analysts at Maybank Investment Banking Group are anticipating strong renewables adoption among ASEAN’s listed companies in the next five to 10 years.

In a recent report, its head of sustainability research Jigar Shah and research analyst Neerav Dalal said renewable usage and strategy is lower for ASEAN’s six key markets, at eight to nine per cent, versus 15 to 17 per cent globally.

As companies worldwide face intensifying pressure to lower their carbon intensity, the analysts said that ASEAN companies will likely reach for emission reduction through operational efficiency and renewable usage – the “low-hanging fruits for decarbonisation” in the short to near term.

Alternatives such as large-scale electrification continue to be held back by high costs of battery raw materials. Nature-based solutions, such as protecting or restoring forests and wetlands, still need to mature in areas of monitoring and true value creation, they said.

Furthermore, solar photovoltaic solutions, which were 710 per cent more expensive than the cheapest fossil fuel-fired solution in 2010, now cost 29 per cent less than the cheapest fossil fuel-fired solution in 2022, they pointed out.

“Clearly, as the levelised cost of electricity is lower, renewables would become the default choice for industry and transport,” Shah and Dalal concluded.

The analysts were making their observations based on their study of Sustainalytics’ global universe of 15,803 exchange-listed companies.

Their analysis of these companies’ three-year carbon intensity suggested that of the 22 per cent of companies that disclose such data, 18 per cent reported stable or declining carbon intensity numbers.

If the sample was narrowed to the 962 listed companies in the six key ASEAN markets – Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam – the disclosure rate was 17 per cent.

Of the 166 ASEAN-6 companies reporting such numbers, more than seven in 10 companies reported a stable or declining carbon intensity trend over three years.

Of these 118 companies, 38 are listed in Malaysia, 35 in Thailand, 17 in Indonesia, 15 in Singapore, and 13 in the Philippines. Vietnam had none since none of its companies disclosed such data.

Among the 15 Singapore-listed companies that achieved stable or declining emissions intensity over the past three years are palm oil producer First Resources and transport giant ComfortDelGro.

The analysts noted that First Resources’ carbon intensity fell by more than 25 per cent in that period, while ComfortDelGro’s fell between 10 and 25 per cent.

The carbon intensities of Sembcorp Industries, Singtel, ST Engineering, StarHub, and Wilmar International were assessed to be “stable”, given that emissions intensity rose or fell by under 10 per cent.

First movers

Companies reporting stable or declining emissions intensity in the past three years:

	Price as at Dec 29 close (S$)	Rating*	Target price*(S$)	Performance to country MSCI Index
	Price as at Dec 29 close (S$)	Rating*	Target price*(S$)	1-year	3-year	5-year
More than 25% decline
First Resources	1	Buy	1.82	(3.2)	8.5	6.7
10-25% decline
ComfortDelGro	1	Buy	1.55	12.5	(0.8)	0.1
Stable (+/-10%)
Sembcorp Industries	5	Buy	6.30	55.4	45.8	37.9
Singtel	2	Buy	3.10	(9.4)	4.9	4.1
ST Engineering	4	Buy	4.20	12.6	5.5	11.0
StarHub	1	Hold	1.10	4.1	1.7	(0.2)
Wilmar International	4	Hold	3.99	(9.9)	0.5	11.2

*Ratings and target prices by Maybank Investment Banking Group as at December 14, 2023
Source: Maybank IBG Research, Sustainalytics, Bloomberg

But despite the progress in decarbonisation, however slow, renewable adoption remains low in the region. Only seven per cent of the companies representing the ASEAN-6 markets have a renewables programme, led by the Philippines, the analysts noted.

In comparison, 19 per cent of companies in Europe have a renewables programme, followed by North America and Canada at 10 per cent. This shows that most companies across regions except Europe are early in their decarbonisation journey, the analysts said.

“As ASEAN significantly raises the renewables proportion of its energy mix in the coming five to 10 years, the decarbonisation theme would strengthen, unleashing opportunities for renewable utilities, capital goods and power transmission,” Shah and Dalal said.

The analysts further noted their analysis showed that in most markets, large companies are either mandated by regulation or due to voluntary efforts are “seriously working on decarbonisation”.

These large companies have the necessary spending power, technology and understanding at the highest level to use decarbonisation as a lever for business strategy and growth, they said.

Given that the 962 ASEAN-6 companies covered by Sustainalytics form 81 per cent of the region’s market capitalisation, this is a space to watch.

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