• Maintain OVERWEIGHT; Top Picks: Tenaga Nasional (TNB), YTL Power (YTLP) and Samaiden. The demand for electricity should stay fairly resilient in 2024. TNB should also continue benefiting from the continuous upgrade in transmission and distribution (T&D) assets, where energy demand can be anchored by mushrooming data centre developments. We continue to like Malaysia’s solar power landscape, as structural growth is fuelled by a solid number of government initiatives and aided by favourable market conditions – as solar power panel prices are expected to remain soft throughout 2024.

• A decent quarter. In the recently concluded reporting period, seven companies under our coverage released their 1Q24 results. Five booked numbers within estimates, while two missed expectations. The two disappointments were Samaiden and Taliworks. For Taliworks, the negative deviation was mainly due to the sluggish progress of construction projects, while a lower commercial & industrial (C&I) contribution and margin contraction resulted in Samaiden recording weaker-than-expected results.

• Data centres to drive electricity demand. Electricity demand rose at a much faster 9.6% YoY, vs GDP growth of 4.2% in 1Q24 – largely driven by stronger commercial (+11.2%) and domestic (+16.8%) segments. Demand hit a new peak of 20,028MW in April. TNB highlighted that the strong commercial demand growth was largely led by the commercialisation of a 150MW data centre in 1Q24. There are two projects with a total capacity of 535MW completed under the Green Lane Pathway and another seven more (c.165MW) to be completed by this year. TNB also aims to sign electricity supply agreements for 10 projects with 2GW in energy demand. Despite strong demand growth of 9.6% YoY in 1Q24, TNB still guided for an annual demand growth of 2.5-3% YoY for this year and the upcoming regulatory period.

• Sunny outlook. The Corporate Green Power Programme (CGPP) is making significant progress, with off-taker agreements nearing finalisation and financial close on the horizon. Recently, one of the solar power players, Sunview, secured an EPCC contract under the programme, marking the beginning of contract awards. We anticipate more jobs to be awarded in the coming months. Looking ahead, we also expect the announcement of LargeScale Solar (LSS) 5 winners in 2H24 after application deadline in 24 Jul. Further boosting the earnings of solar players is the commercial trading of Malaysia Renewable Energy Certificates (mRECs), which is designed to increase market demand for renewable energy (RE) by allowing companies to trade certificates representing RE production.

• Risks: Lower-than-expected new RE capacity rollout and higher-thanexpected operating costs.

Source: RHB Securities Research - 13 Jun 2024