■ Keppel’s asset-light strategy is at play with the exclusive framework signed with EDL to import 100MW of renewable hydropower from Lao PDR.
■ Earnings impact could be minimal for now but ESG impact could be significant as carbon footprint reduction is a priority for Singapore.
■ Add with unchanged TP of S$6.90, still based on SOP valuations. Catalysts: renewable energy investments, successful divestment of offshore & marine.
ESG boost; Singapore’s first hydro renewable energy import
● Keppel Electric (KEP), a subsidiary of KI, has signed an exclusive framework agreement with Electricite Du Laos (EDL) as part of the Lao PDR- Thailand-Malaysia- Singapore Power Integration Project (LTMS-PIP).
● KEP will import up to 100MW of renewable hydropower from Lao PDR to Singapore via Thailand and Malaysia using existing interconnectors under an import trial.
● This is in line with Keppel’s Vision 2030 to provide innovative solutions for sustainable urbanisation, which enhances its ESG component. Since 2020, KEP has scored AAA, as rated by MSCI, and is a leader among global industrial conglomerates, being ranked among the top 8% in the MSCI All Country World Index.
● In the bigger picture, this contributes to Singapore’s climate goals to halve its 2030 peak greenhouse gas emissions by 2050 and to achieve net zero emissions. In 2020, Singapore started talks with Malaysia to import 100MW of solar electricity over a trial of 2 years.
Not just about power supply but source of greener energy
● EDL’s switch to renewable energy can slash the carbon footprint of data centres (DCs). Currently, DCs generally run on conventional natural gas power. Keppel Data Centre REIT group’s energy consumption stood at c.480MW as of 2020, comprising c. 472,318MW of electricity and c. 7,701MW of diesel fuel.
● KEP has been actively sourcing for cleaner solutions for its data centres since 2020. Examples are its agreements with Toll Group and Royal Vopak to study the possibility of developing a Floating Data Centre Park and liquefied natural gas (LNG) power solutions in Singapore.
Levels playing field with peers
● Renewable energy’s versatile nature enables KEP to supplement the electricity supplied to customers through KEP Electric.
● We believe KEP is catching up to SCI in the race for renewable energy, through acquisitions/asset-light strategies such as above. In Dec 2020, KEP signed an agreement to acquire a 45% stake in Harlin Solar Pty Ltd to develop its first greenfield solar energy farm (c.500MW) in Queensland, Australia.
Reiterate Add with SOP-based TP of $6.90
● We believe KEP’s sustained drive to green its business via opportunistic acquisitions and deals will help accelerate its Vision 2030 target achievement. Key downside risk: 100MW supply of power on a trial basis does not translate into long-term supply.