In 2QFY2024 earnings season, performance of companies under our coverage were largely inline with our expectation except for Tenaga which exceeded our estimate, attributed to better-than-expected sales of electricity along with lower fuel cost and forex translation loss amid strengthening of MYR. Tenaga’s sales of electricity escalated 4% QoQ and 6% YoY thanks to increased demand from commercial (DCs included under this) and domestic segment by 10% and 12% YoY, respectively. Similarly, Malakoff were partially benefited from the power surged demand when earnings improved compared to a net loss in corresponding quarters. Its despatch rate grew at 18% YoY due to increased demand from the grid. We are optimistic on Malakoff’s earnings outlook moving forward supported by (i) stable coal price, (ii) 1-year PPA extension for its Prai Plant (Sept 2024 - Aug 2025), and (iii) higher despatch rate for its gas fired power plant.
Overall, earnings for power players are anticipated to stay robust supported by surging electricity demand from the DCs and stable fossil fuel price. The upcoming implementation of TPA will positively impact utilities players as it will provide a better return as compared to previous competitive bidding like LSS tender. In view of gas player, Malaysian Reference Price (MRP) in 2Q24 saw a declined by 5% YoY. However, Gas Malaysia recorded the highest quarterly earnings stemming from favourable tolling fee (+44% YoY) and higher gas volume (+7% YoY). Earnings are expected to stay strong inline with stable gas price and potential pick-up demand from the Rubber Glove sector (YTD: +17%). Meanwhile, PetGas earnings posted flattish performance, slightly dragged by higher level of maintenance activities and depreciation. In short, with ICPT surcharge reduced to 16sen/kWh for 2H2024 (vs 1H24: 17sen/kWh), we expect impact to earnings to be minimal despite it could derive lower sales from electricity under utilities segment.
Maintain OVERWEIGHT recommendation on the sector, with a BUY call on TENAGA (TP: RM17.84) and Malakoff (TP:RM0.90), while a HOLD call on Gas Malaysia (TP: RM3.83) and Petronas Gas (TP: RM16.52).
Source: BIMB Securities Research - 2 Sept 2024