KUALA LUMPUR (Sept 2): Stable fossil fuel prices (ie gas and coal) will have a positive impact on Tenaga Nasional Bhd (KL:TENAGA) and Malakoff Corporation Bhd (KL:MALAKOF), according to a note by BIMB on Monday. However, BIMB stayed “neutral” on Gas Malaysia Bhd (KL:GASMSIA) and Petronas Gas Bhd (KL:PETGAS).

“Earnings for power players are anticipated to stay robust, supported by surging electricity demand from the data centres (DCs) and stable fossil fuel price,” BIMB said in a note on Monday.

“The upcoming implementation of third-party access (TPA) will positively impact utilities players, as it will provide a better return as compared to previous competitive bidding like the LSS (large scale solar) tender,” it added.

The corporate earnings season for 2Q2024 largely met BIMB’s expectation, while Tenaga surprised the house with an upside. 

“In the 2Q2024 earnings season, performance of companies under our coverage were largely in line with our expectation, except for Tenaga, which exceeded our estimate, attributed to better-than-expected sale of electricity, along with lower fuel cost and forex translation loss, amid the strengthening of the MYR (Malaysian ringgit),” BIMB said.

Tenaga’s sale of electricity escalated 4% quarter-on-quarter and 6% year-on-year (y-o-y), thanks to increased demand from the commercial (DCs included under this) and domestic segment by 10% and 12% y-o-y, respectively.  

Similarly, Malakoff partially benefitted from the power surged demand, when earnings improved compared to a net loss in corresponding quarters. 

Its despatch rate grew at 18% y-o-y, due to increased demand from the grid.  

“We are optimistic on Malakoff’s earnings outlook moving forward, supported by the stable coal price, one-year power purchase agreement (PPA) extension for its Prai plant from September 2024 to August 2025, and higher despatch rate for its gas fired power plant,” BIMB said. 

In view of gas player, Malaysian Reference Price (MRP) in 2Q2024 saw a declined by 5% y-o-y. 

However, Gas Malaysia recorded the highest quarterly earnings stemming from favourable tolling fee (+44% y-o-y) and higher gas volume (+7% y-o-y).  

“Earnings are expected to stay strong, in line with stable gas prices and a potential pick-up demand from the rubber glove sector (year-to-date: +17%),” BIMB said.  

Meanwhile, Petronas Gas’ earnings posted a flattish performance, dragged slightly by a higher level of maintenance activities and depreciation. 

BIMB maintained an “overweight” recommendation on the sector, with a “buy” call on Tenaga at a target price (TP) of RM17.84, Malakoff at a TP of 90 sen, and a “hold” call on Gas Malaysia with a TP of RM3.83, and Petronas Gas with a TP of RM16.52. 

At the time of writing on Monday, Tenaga shares shed four sen or 0.3% at RM14.6, translating into a market capitalisation of RM84.9 billion, while Malakoff shares slid half a sen or 0.5% to 91.5 sen, valuing the group at RM4.58 billion.

Petronas Gas shares dropped six sen or 0.3% to RM18.22, with a market capitalisation of RM36.2 billion, while Gas Malaysia’s shares were unchanged at RM3.69, valuing the group at RM4.74 billion.

https://www.theedgemarkets.com/node/725145