Maybank Securities is keeping its “buy” recommendation on Sembcorp Industries with a higher target price of $6.20 from $6.00 previously.
This comes on the back of Sembcorp agreeing to import 50MW of renewable energy from Tenaga of Malaysia to Singapore issued with Renewable Energy Certificates (RECs) using existing infrastructure. The two-year agreement starts this month. Pricing and settlement details are undisclosed.
While there is no immediate material impact on the earnings and net tangible assets of the group, analyst Krishna Guha sees this as a positive step towards Asean power integration and supports the energy transition plans of both countries.
The deal is part of Malaysia’s inaugural pilot supply of green electricity for cross-border energy trading via the Energy Exchange Malaysia platform. It will also be the first-ever renewable energy import with RECs into Singapore. The RECs provide proof of origin of renewable energy generation, ensuring that the energy is sustainably sourced.
Total interconnection capacity between Peninsular Malaysia and Singapore stands at 1GW with 300MW allocated for cross-border energy sales for renewable energy between the two countries. Details about pricing, settlement, and nature of RECs (energy mix, jurisdiction, tradability, etc.) are unavailable.
The uniform Singapore energy price (USEP) for last month averaged $129.4/MWh while Malaysia’s system marginal price (SMP) averaged RM178.9/MWh. Currently, for RE/Scope-2 offsets, companies in Malaysia purchase unbundled RECs or sign separate power purchase agreements or pay additional green electricity tariffs; while companies in Singapore rely on RECs. Development of a credible cross-border REC framework is a work in progress.
See also: CGSI initiates ‘add’ call on Oiltek with TP of $1.32
Meanwhile, in the past month, Sembcorp has signed contracts to secure gas supply and expand its renewable footprint. The group won a 300MW renewable energy tender in India. Currently, it has 16GW of renewable power capacity. It secured second long-term power purchase agreement (PPA) with Equinix to start from 2029. Further, Chevron will supply 0.6 million tonnes of liquified natural gas (LNG) per annum from 2028 for a period of 10 years. “These deals will secure SCI’s earnings in the medium term,” says Guha.
Taking these updates into consideration, Guha has raised FY2025/FY2026 estimates factoring in higher gas sales and renewable revenue and roll forward the research house’s valuation model to FY2025. “While valuations are fair after the recent rally, earnings will be supported by contract gas sales in the near term and sale of renewable energy in the medium term,” says Guha.
While Sembcorp's share price is on the uptrend now and trading at a 10-year high, the stock has yet to cross the $6 mark since 2007. Ytd, shares in Sembcorp are up 5.24%, trading at $5.63 at 10.26am on Dec 11.
