Sembcorp Industries Singapore has agreed 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 isn't any immediate material impact on the earnings and NTA of SCI, this is a positive step towards ASEAN power integration and supports the energy transition plans of both countries. Maybank IB has lifted its FY25/26 revenue for gas-related business and renewable energy and rolled forward its SOTP-based valuation to FY25E. this leads to a slight rise in TP to SGD6.20 from SGD6.00. The house keeps its BUY call on the stock.

Pilot supply of 50MW renewable energy with RECs
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. Singapore USEP for last month averaged SGD129.4/MWh while Malaysia's SMP averaged MYR178.9/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

Securing revenue sources
In the past month, SCI signed contracts to secure gas supply and expand its renewable footprint. SCI won a 300MW renewable energy tender in India. Currently, it has 16GW of renewable power capacity. It secured second long-term PPA with Equinix to start from 2029. Further, Chevron will supply 0.6m tonnes of LNG pa from 2028 for a period of 10 years. These deals will secure SCI's earnings in the medium term.

Maintain BUY
Maybank IB is raising its FY25/26E factoring in higher gas sales and renewable revenue and rolled forward its valuation model to FY25E. 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