Stocks Pivoting to Sustainable Solutions Lead STI in 2023 YTD

• With global focus to a lower carbon and more climate resilient future, multiple Singapore-listed stocks have continued to press ahead with pivots to sustainable energy which include solar and wind assets, or more fuel-efficient transportation solutions.
   
• Sembcorp Industries has led the STI this year with a 56% total return. To support the global energy transition, it aims to grow net profit contribution from its sustainable solutions portfolio to 70% by 2025. Keppel Corporation has been the second strongest performing STI stock this year with a 51% total return. In 1HFY23, Keppel’s renewable energy portfolio grew to 3.0GW, making up over 60% of its total energy portfolio of 4.9GW on a gross basis.
   
• Yangzijiang Shipbuilding has been the third strongest STI stock this year with a 32% total return. Its current total outstanding order book amounts to an all-time high of US$14.7 billion with 56% of the order book in cleaner energy vessels. While generating more flat total returns this year, Seatrium has joined the STI this year and maintains a net order book that consists of 40% renewables and cleaner/green solutions.

For the globe to achieve the Sustainable Development Goals by 2030 and net zero emissions by 2050, the UN Environment Programme maintains significant investment in sustainable and resilient infrastructure is required. The OECD estimates US$7 trillion per year is needed up to 2050 for investment in infrastructure that meets the development goals.

Paralleling increased focus this year on a lower carbon, more climate resilient future, multiple Singapore-listed stocks have continued to press ahead with pivots to sustainable energy and fuel-efficient transportation solutions. According to the International Energy Agency, the volatile global energy situation in 2022 accelerated the growth in renewable energy, which is expected to transform the global power mix through 2027 and become the largest source of electricity. On the maritime front, the International Maritime Organisation (IMO) have introduced the Energy Efficiency Existing Ship Index and the Carbon Intensity Indicator rating, which came into effect in January 2023, as part of its strategy to reduce greenhouse gas emissions from ships.

The 2023 year to 8 Sep has seen the STI generate a 3.0% total return, while the three strongest constituents of the benchmark have averaged 46.5% total returns. These three stocks include Sembcorp Industries, Keppel Corporation and Yangzijiang Shipbuilding. The trio have all pivoted to more sustainable infrastructure or more fuel efficient solutions. The fourth STI stock which has also made such a pivot, is Seatrium, which has averaged a 1.4% total return over the past 36 weeks.

Seatrium has also booked the highest net institutional inflow in the Singapore stock market this year, followed by Sembcorp Industries.

Most Traded Energy Infrastructure & Ship/Automobile Transportation Solutions	Code	Avg Daily Trading T/O in 2023 (S$M)	Mkt Cap (S$M)	Friday Close	CCY	Refinitiv Consensus Estimate Target Price	Refinitiv Consensus Estimate Target Price CCY	MTD Px Chg %	QTD Total Return %	Net Insti. Flow (S$M)	YTD Total Return %
Seatrium	S51	$43.7	$9,550	$0.14	SGD	0.179	SGD	-3.4	12.0	200.4	1.4
YZJ Shipbldg SGD	BS6	$35.1	$6,835	$1.73	SGD	1.894	SGD	2.4	15.3	47.9	32.4
Keppel Corp	BN4	$28.5	$12,001	$6.81	SGD	7.973	SGD	-1.9	3.6	-177.4	51.3
Sembcorp Ind	U96	$28.0	$9,126	$5.12	SGD	6.399	SGD	-4.3	-10.2	165.5	55.7
Jardine C&C	C07	$12.8	$12,699	$32.13	SGD	35.516	SGD	-3.9	-6.6	19.0	17.5
ComfortDelGro	C52	$8.6	$2,707	$1.25	SGD	1.489	SGD	-1.6	10.3	11.6	7.7
SamuderaShipping	S56	$3.8	$404	$0.75	SGD	N/A	N/A	1.4	-11.0	-4.9	17.2
Kep Infra Tr	A7RU	$3.3	$2,757	$0.49	SGD	N/A	N/A	-1.0	-2.6	-34.5	-2.1
NIO Inc. USD OV	NIO	$2.8	$21,290	$10.15	USD	13.642	USD	-2.8	6.8	4.5	2.2

 Source: SGX, Refinitiv, Bloomberg (Data as of 8 September 2023, with  Consensus Price Targets as of 11 Sep Morning Session). Note the above list of stocks have averaged trading turnover this year that ranks among the 50 most traded Singapore stocks on a day to day basis.

The performances of the four stocks are tabled above, with the table also including other actively traded stocks that have signaled a pivot in the near future. For instance:

• Jardine Cycle & Carriage Managing Director noted in April that the Group was focused on the transition to electric vehicles, noting that that the Indonesian market is still in the early days of the EV journey, and Toyota is committed and working closely with Astra to deliver the right product while in Singapore Mercedes-Benz is committed to purely EVs for the luxury segment.
• ComfortDelGro Corporation has noted that its pace of pace of electrification will be in line with the rollout of the national EV charging infrastructure, and it will continue to replace taxis that reach the end of their 8-year statutory life with EVs. In Singapore, a joint venture of ComfortDelGro Corporation and ENGIE South East Asia to provide EV charging solutions and renewable solar energy has seen the installation of 500 charging points and this will double to 1,000 by year-end.
• Samudera Shipping is currently rejuvenating its more than 30 vessels fleet to obtain greater operational and fuel efficiency. There will be six new-build vessels with enhanced design features to be delivered gradually from 2023 to early 2025. These six newbuilds form part of its strategy to rejuvenate its fleet with younger, larger and more fuel-efficient vessels, following its disposal of older, less efficient vessels in prior years.
• Keppel Infrastructure Trust is increasing its exposure to renewable energy by up to 25% of AUM by 2030. In May, the Business Trust announced the acquisition of a 13.4% interest in Fäbodliden II, an onshore wind farm in Sweden in May 2023, which followed similar acquisitions in 2022.
• NIO is a secondary listing, with the pioneer and a leading company in the premium smart electric vehicle market, which delivered 94,352 vehicles over the first eight months of 2023, increasing by 31.9% year-over-year.

The two STI stocks, Keppel Corporation and Sembcorp Industries, pursing strategic pivots to sustainable energy which include solar and wind assets, and two STI stocks, Yangzijiang Shipbuilding and Seatrium pursuing more fuel-efficient maritime solutions are contributing between 10 cents to 15 cents in every dollar that is going to work in the stock market each trading day.

All four stocks are also currently trading below their Refinitiv consensus estimates Target Prices. These Target Prices can be found in the SGX Stock Screener, and typically represent an analyst’s opinion of the stock performance over the next 18 months.

Seatrium

Seatrium joined the STI this year and has ranked as #6 most traded stock this year with its net order book at S$19.7 billion with projects lined up to 2030. This comprises S$7.9 billion or 40% renewables and cleaner/green solutions. New Order wins in 1H23 included Seatrium’s largest offshore renewable project yet. As part of a consortium, Seatrium will construct three 2GW HVDC Offshore Converter Platforms for TenneT. These will be the biggest and most powerful HVDC Offshore Converter Platforms in the industry and serve TenneT’s three offshore wind farm projects off the coast of Netherlands, to enable Europe to be the world’s first climate neutral continent.

• In 1H23, Seatrium delivered its third zero-emission fully battery-operated Ropax ferry, Leikanger, designed and built for Norled and based on a proprietary design by wholly-owned subsidiary LMG Marin.
• 1H23 also saw Seatrium win a S$500 million contract for two offshore wind farm substations for Empire Offshore Wind for installation in the east coast of the US. This powers more than one million homes in New York and support US energy transition goals. Seatrium maintains ‘the prospects for offshore-wind related orders will continue to be driven by Europe and the US needs’ to meet capacity targets by 2040 and that these targets are likely to be accelerated due to increasing momentum of energy transition and governmental goals of net zero emissions.
• Its wholly-owned subsidiary LMG Marin, has entered a Joint Development Project with partners GTT, TotalEnergies and Bureau Veritas to develop a 150,000m3 liquid hydrogen carrier concept design to pave the way for safe and efficient transport of hydrogen at sea for maritime decarbonisation.
• The drive for sustainable yard operations has also resulted in the adoption of renewable energy sources to power Seatrium’s yards in Singapore, the Philippines, China, and Brazil. Seatrium has also secured green trade finance facilities with banker’s guarantee, worth S$1.1 billion, to finance its sustainability efforts.

Yangzijiang Shipbuilding

Yangzijiang Shipbuilding has ranked as #8 most traded stock this year, which has followed on from its breakthrough into clean energy vessels, as well as higher dual-fuel vessel demand which drove its order wins in 2022. Its current total outstanding order book amounts to an all-time high of US$14.7 billion for a total of 181 vessels. This is comprised of 91 containerships of which 51 are dual fuel, 53 Bulk vessels, 8 LNG/LPG/LEG and 29 oil tankers. The clean energy vessel orders have experienced a significant increase, representing 56% of the total contract value as of 30 June 2023, compared to the 23% recorded on 30 June 2022.

• The Group maintains that ‘with increased clarity from the IMO on the industry’s green transition’, it will be strengthening its green technology capabilities as it competes to be the forefront of the industry, and is committing to build on its R&D capabilities through targeted recruitment and greater investment to enable Yangzijiang to continue its growth trajectory in clean energy vessels.
• Yangzijiang Shipbuilding’s obtained its license for the construction of vessels using GTT Mark III membrane technologies in Sep 2022. This allowed Yangzijiang Shipbuilding to make strategic inroads into the large LNG carrier market, with GTT membranes widely chosen as the cargo containment and insulation system for the large LNG carriers, onshore and offshore applications. GTT membrane tanks are Integrated with the vessel’s structure and used to contain liquefied gas at low temperatures during shipping, onshore and offshore storage. GTT maintain its Mark III membrane technologies are continually optimised to meet the requirements of ship-owners and shipyards, while also complying with regulatory changes affecting the sector.

Keppel Corporation

Keppel Corporation has ranked #11 most traded stock this year. Keppel’s infrastructure division comprised around two-thirds of its 1H23 revenue, and consists of an integrated power business, as well as a decarbonisation and a sustainability solutions business. In 1HFY23, Keppel’s renewable energy portfolio grew to 3.0GW, making up over 60% of its total energy portfolio of 4.9GW, with projects across the spectrum of solar (1.95GW), wind (0.96GW)and hydro power (0.09GW). The 4.9 GW portfolio is on a gross basis and includes projects under development with 64% of capacity operational while 36% is under development.

• The Keppel Sakra Cogen (KSC) plant is part of the pipeline to grow its renewable energy portfolio. As part of a consortium with Mitsubishi Power Asia Pacific and Jurong Engineering, Keppel is developing Sakra sector of Jurong Island, the KSC Plant will be a 600MW state-of-the-art, advanced combined cycle gas turbine (CCGT) power plant. Expected to be completed in 1H26, the KSC Plant is touted to be the most energy efficient among the operating fleet in Singapore, featuring superior performance, such as lower emission intensity and higher operation flexibility. Operating initially on natural gas as a primary fuel, the KSC Plant is envisaged to be able to save up to 220,000 tons per year of CO2 as compared to Singapore’s average operating efficiency for equivalent power generated. Such savings in CO2 equivalent translates to taking about 47,000 cars off the road per year.
• Aside from net-zero energy generation, sustainability solutions also include waste-to-energy (WTE), district cooling as well as EV charging infrastructure, powered by digital twin and AI-based operations and monitoring. Keppel is currently supporting Hong Kong with its first Integrated Waste Management Facility (IWMF) for municipal solid waste. In July, Keppel signed a MOU with HSBC that will draw on Keppel’s proprietary expertise and proven capabilities in developing, implementing, and operating innovative, reliable, and sustainable energy and environmental infrastructure, as well as HSBC’s ability to provide green financing to accelerate and scale up relevant climate change solutions and channel investments towards sustainable projects.
• On 8 Sep, Keppel Corporation, announced it had received conditional approval from the Energy Market Authority of Singapore (EMA) for the long-term import and sales of 300 megawatt (MW) of low-carbon electricity from renewable energy sources in Indonesia to Singapore.

Sembcorp Industries

Sembcorp Industries has ranked as #13 most traded stock this year. With 2.1GW of renewables projects added in 1H2023, its gross renewables capacity has reached 11.9GW with 8.6GW of capacity installed and 3.3GW under development. Note that Sembcorp Industries’ total balanced energy portfolio of capacity installed and under development is 19.4GW. Of the 8.6GW installed gross capacity, 5.4GW is in China and 2.3GW is in India.  

• To support the global energy transition, Sembcorp aims to grow net profit contribution from its Sustainable Solutions portfolio to 70% and achieve a target of gross installed renewable energy capacity of 10GW by 2025. The brown to green strategic transformation plan was launched in May 2021 after net profit from Sustainable Solutions made up 40% of 2020 net profit.
• In 2022, Sembcorp Industries renewables capacity grew 60% to 9.8GW and Sembcorp Industries commissioned Southeast Asia’s largest energy storage system in six months.
• Sembcorp Industries also commissioned Singapore’s first solar farm with an integrated rainwater harvesting system in 2022. Tapping Singapore’s rainy weather, the facility is expected to collect and treat up to 170,000 cubic metres of rainwater annually to cool and clean solar panels for optimum performance.
• On 28 August, Sembcorp Industries announced that with Vietnam Oil and Gas Group Petrovietnam it is jointly exploring the development of offshore wind farms in Vietnam for the export of electricity to Singapore.
• As a leading producer of renewable energy and the largest importer of natural gas in Singapore, Sembcorp Industries is also well-positioned to support the Singapore government’s newly outlined approach to develop hydrogen as a major decarbonisation solution.

Did you know?

Unlike conventional energy, renewables energy is not baseload and does not generate electricity 24/7. The power generation depends on the plant load factor (PLF) of the renewable energy asset such as the irradiance level (for solar) and wind resource (for wind assets). As a theoretical/ indicative guide if the PLF was between 13% to 15% for solar assets in Singapore in 2022 and assuming SP Group HDB flat average consumption, 1.0 GW of power could power over 270,000 four-room HDB flats in a year!

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Originally Posted September 11, 2023 – Stocks Pivoting to Sustainable Solutions Lead STI in 2023 YTD