Deputy Prime Minister and Finance Minister Lawrence Wong emphasised in his Budget 2024 speech that Singapore will “make no apology for pursuing growth”.
While Wong acknowledged that embracing sustainability may entail additional costs for businesses, going green can also be a competitive advantage, and it is important that local companies are “sustainability-ready”, says OCBC Investment Research analyst Ada Lim.
“While Singapore’s approach to environmental sustainability may not be the most perfect nor the most ambitious, we think there is merit in highlighting the various ways in which the Singapore government is striking a balance with, partnering and galvanising the private sector to decarbonise, without compromising on economic growth,” adds Lim.
In a March 11 note, Lim names eight stocks across industrials and financials that are contributing to Singapore’s transition to a low-carbon economy. This is the first of three stories revealing the analyst’s stock picks.
Catalytic funding
The cost of environmental sustainability is too large for either the public or private sector to bear alone, says Lim. “Instead, the government can provide catalytic funding and work with corporates to achieve national decarbonisation targets.”
See also: Sustainability leaders welcome $5 bil Future Energy Fund, hope for hydrogen breakthrough
This is especially true in the power sector. According to the Energy Market Authority, power generation accounts for about 40% of Singapore’s emissions, with 95% of electricity generated from natural gas.
Singapore’s energy transition will be costly, says Lim, given the need for new submarine power cables for clean electricity imports, power generation facilities if the country scales up its use of hydrogen fuel and energy storage systems to provide reliable power supply to end-consumers.
To this end, Wong announced three schemes: a $5 billion Future Energy Fund to support private sector efforts in building critical clean energy infrastructure, a $2 billion top-up that supports the Refundable Investment Credit (RIC) to promote manufacturing and research on the low-carbon transition and a $3 billion injection to the Research, Innovation and Enterprise 2025 Plan (RIE2025).
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
A few companies under OCBC’s coverage could potentially benefit from these schemes, says Lim.
Firstly, Sembcorp Industries U96 (target price $6.83) has been actively growing its renewables business. In Singapore, the firm has won tenders relating to solar projects, such as the recent tender from Jurong Town Council (JTC) for a 60ha solar project on Jurong Island.
Meanwhile, Keppel ($8.60) is involved in various clean energy solutions, says Lim.
This includes the Keppel Sakra Cogen Plant (KSC Plant), a 600-megawatt (MW) combined cycle gas turbine power plant.
Expected to be completed in 1H2026, KSC Plant will be Singapore’s first hydrogen-ready co-generation plant, and could save up to 220,000 tonnes of carbon dioxide per year, as compared to Singapore’s average operating efficiency for generating an equivalent amount of power.
Separately, Keppel Infrastructure Trust A7RU ($0.60) has been building up its renewable energy portfolio overseas through wind farm assets in Europe and a solar portfolio in Germany.
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In April 2023, KIT’s holding, City Energy, signed a memorandum of understanding (MOU) to study the feasibility of establishing a supply chain of sustainable liquid hydrogen from Western Australia to Singapore, and potentially Japan.
Finally, ST Engineering ($4.60) is involved in smart utilities. These include streetlights that can automatically adjust their lighting intensity based on the ambient environment so as to consume less energy; smart water meters that highlight leakages when there is a spike in water consumption; and the use of sensors in utility services to collect data.
In February 2022, STE signed an MOU with Japanese manufacturer IHI Corporation to jointly pursue opportunities in urban solutions, energy management and hydrogen technology, ammonia solutions and space data applications.
Shares in Sembcorp closed at $5.03, shares in Keppel closed at $7.11, units in Keppel Infrastructure Trust closed at $0.49 and shares in ST Engineering closed at $3.97 on March 12.
Infographic: OCBC Investment Research
Read OCBC’s full list of eight stock picks that could benefit from Budget 2024 schemes here:
