ESG and green stock investing provides investors the best of both worlds where their interests in virtues and profitability coincide
By PRIYA VASU / Pic by TMR FILEPIX
INVESTORS’ interest in decarbonisation stocks like renewable energy (RE)-linked companies remains strong despite the pullback in the market post the emergency declaration and second cycle of the Movement Control Order.
Environmental, social and governance (ESG) thematic is expected to draw more investors into such counters for the long term, said Rakuten Trading Sdn Bhd VP Vincent Lau.
“We might not see the same level of price rally we witnessed in the glove counters when the Covid-19 pandemic heightened, however, there is a strong base of investors interested in this area,” said Lau to The Malaysian Reserve (TMR) recently.
He added that the Covid-19 pandemic has dimmed the prospects of valuable returns in various sectors due to the worldwide lockdown and domestic restriction that hampered economic growth.
ESG-related issues have weighed on investors’ conscience when highly valued behemoth companies on Bursa Malaysia were alleged to be embroiled in workers’ welfare negligence issues.
Investing approach has also shifted from traditional financial metrics and profitability to investors increasingly scrutinising companies’ responses to pandemic- related issues.
Lau added that ESG and green stock investing provides investors the best of both worlds where their interests in virtues and profitability coincide.
He added that much of the excitement in local green stock counters since last November also comes from the prospects of future contract awards under the large-scale solar 4 (LSS4) scheme.
The Ministry of Energy and Natural Resources via the Energy Commission has opened a competitive bidding process under the LSS programme by Malaysia Electricity Industry to attract RE investment (LSS@MenTARI).
Under LSS@MenTARI, 1,000MW of solar quota will be offered through a bidding process, and is open to fully owned local companies or with at least 75% local shareholding for companies listed on Bursa Malaysia. The quota offered is the biggest under the LSS programme.
Companies like Cypark Resources Bhd, Solarvest Holdings Bhd and Samaiden Group Bhd are expected to benefit from the 1,000MW power projects lined up under the LSS4 scheme.
“A sizeable amount of clients is going after RE stocks, swapping for stocks that lead themes of the day such as vaccines and glove,” said Lau.
TradeVSA System Sdn Bhd market strategist Martin Wong said investors are currently rotating profits made from glove and finance counters to refresh their investment portfolios in RE counters.
“The profitability of these companies are better than average KLSE companies. The intrinsic values in the companies determine their valuation. Are investors willing to pay for growth? Certainly judging from now, they are,” he told TMR.
Martin, who was a former VP in an investment bank and a fund manager, further said much of the interest in RE stocks has picked up since the inauguration of US President Joe Biden who makes climate change agenda as one of his central priorities.
On Jan 19, Solarvest and Samaiden hit new highs as local players reacted to Biden’s inauguration and the US rejoining the Paris Climate agreement.
Solarvest hit RM2.62 at close yesterday compared to RM1.28 on Aug 3, 2020, while Samaiden rose from 70 sen in October to close at RM1.80 yesterday.
“The sentiment towards RE will be positive as long we see positive ‘words’ of RE from the Biden administration,” said Wong.
He added that the green investments will go beyond just trendsetting as investors are actively looking for new thematics as the frenzy seen in rubber glove and healthcare counters last year subsides further.
Wong said companies like Solarvest that are involved in engineering, procurement, construction and commissioning (EPCC), and pure solar generation offer value proposition driven by its LSS4 bidding. Solarvest’s shares have advanced 247% in the past year.
Samaiden, which secured a RM25.8 million biomass project earlier this year, also promises growth prospects as the company looks to leverage on providing EPCC services for solar photovoltaic systems and power plants under the LSS programme.
Wong added that stocks such as Mega First Corp Bhd (MFCB), despite being priced high, offer stability for investors in the long run.
MFCB operates hydropower plants and recently ventured into solar power generation with Pekat Teknologi Sdn Bhd via a 55:45 joint venture called MFP Solar Sdn Bhd to undertake solar projects of up to 10MW in Malaysia.
He foresees more companies diversifying into the RE market due to the vast growth potential it holds.
“There is a possibility that there are many potential clients and projects in coming days chasing RE-listed companies like Solarvest, Samaiden and Cypark. We will also see more conventional power generation players as well as construction companies changing their status to the RE sector much like Mah Sing Group Bhd going into rubber glove production,” added Wong.