More Detailed Plans to Be Announced in July
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com. -- Ed.
The Korean government has announced its economic policy direction for 2H20, promoting in earnest Korea’s version of a Green New Deal—key initiatives are to include green infrastructure, energy efficiency improvement, and renewable energy expansion. Although these initiatives should spur positive momentum for the share prices of domestic renewable energy players, a selective approach is advised.
Government promoting Green New Deal in earnest
The Korean government has announced the economic policy direction for 2H20. Key policies include a Digital New Deal, a Green New Deal, and measures to strengthen employment security. To support these three key aims, the government is earmarking funds of W31tn to be invested over 2020~2022, with the total amount to reach W76tn over 2020~2025. Looking at the budgeting for just the Green New Deal, the government is to invest a total of W12.9tn over 2020~2022, targeting the creation of 133,000 new related jobs by end-2022.
Outlining and confirmation of more detailed plans is to take place in July, but the government is saying that the main architecture of the Green New Deal will consist of: 1) green transformation of living infrastructure (W5.8tn); 2) establishment of an innovative green industry ecosystem (W1.7tn); and 3) expansion of low-carbon/distributed energy (W5.4tn). Key details include the improvement of living SOC energy efficiency facilities, the building of smart grids, and the encouraging of greater renewable energy. Of note, the renewable energy budget is being included under the low-carbon/distributed energy expansion policy section.
Valuations to rise rapidly on policy expectations; focus on firms set to display further stable top-line growth
In July, we expect the announcement of the four following major renewable energy initiatives: 1) expansion of small-scale solar power plant installations (including agricultural and home solar power installations); 2) large-scale offshore wind power and solar power complex projects (via government agencies and green finance schemes); 3) the proposal of new resident-friendly policy measures and the beefing up of existing related policies; and 4) improvements to the Renewable Energy Certificate (REC) program.
Although its direct budget input for now is only around W300bn (in the form of support loans for solar power projects and additional budget funding), the government is expected to promote large-scale related building projects via licensing support, funding support for local governments, and green finance schemes, amongst other support measures.
We suggest taking a selective approach when selecting out renewable energy players for investment. With Korea, EU countries, and several other countries promoting initiatives aimed at strengthening and expanding the renewable energy industry as part of their post-covid-19 era policy plans, the valuations of related companies are primed to rise rapidly. But, we caution against simply choosing investment targets based upon high expectations for policy benefits alone. Rather, taking into consideration the timing of actual policy implementation, we advise selectively investing in companies that are not only to enjoy government policy support, but are also set to display further stable top-line growth in line with ongoing export expansion. We prefer Hanwha Solutions amongst solar industry players and CS Wind amongst wind power industry players.