EVEN as it lauded Bursa Malaysia Bhd rolling out a voluntary carbon market (VCM) exchange later this year to accelerate Malaysia’s journey to becoming carbon neutral country by 2050, Hong Leong IB (HLIB) Research has reiterated its fundamental “sell” rating on the local bourse given its lacklustre average daily volume (ADV) numbers since July 2022.
Reiterating its target price of RM5.65 which reflects a 12.3% deficit from RM6.44 at the time of writing, the research house echoed the outlook of Bursa Malaysia’s management which “does not expect significant contribution from the VCM in the near term but definitely sees potential over the longer term”.
“The aim of the VCM is to put a price on carbon emissions through a market mechanism. Actual monetary value will be put on (i) the cost of carbon emission; and (ii) low-carbon energy opportunities such as clean technology, carbon capture, green mobility and others,” explained head of research Jeremy Goh and analyst Tan Kai Shuen in a company update.
“Effectively (though in a more mandatory sense rather than voluntary), the costs that the public pays – through crops damage, property damage from flooding and sea level rise, heat waves, drought, etc – will be shifted back to those who are responsible for the carbon emissions.”
Although the VCM is voluntary, HLIB Research is of the view that companies who choose to participate and purchase carbon offset will be able to demonstrate to stakeholders their commitment towards reducing their carbon footprint.
“The system will drive corporates to internalise this cost in to their business operations,” the research house pointed out.
Hence, failure of companies to transition to low carbon practices (or failure to demonstrate their commitment) will not only damage their reputation (which in turn impact revenue), it can also make it more difficult for them to access capital (raising cost of capital) as debt financiers are increasingly looking at sustainability criteria when providing capital.
“On the other end, VCM rewards green asset owners and this will incentivise innovation in low carbon technologies,” noted HLIB Research. “Through VCM, investors will also be able to start using the price signals from the exchange to price in carbon emission cost to businesses.”
At 12.08pm, Bursa Malaysia was up 4 sen or 0.63% to RM6.44 with 129.100 shares traded, thus valuing the stock exchange operator at RM5.21 bil. – Aug 16, 2022
