• The corporate earnings season for the 3QFY2024 were largely meeting our expectation except Gas Malaysia that has surprised us on the upside.

• We anticipate utilities sector prospect to flourish onwards leveraging on rising electricity demand from Data Centers (DCs), stable fossil fuel prices and the opportunity from Third-Party Access (TPA) mechanism.

• Reiterate our OVERWEIGHT recommendation on the sector, with a BUY call on Tenaga (TP: RM17.84), Malakoff (TP:RM1.38) and Solarvest (RM2.23) while a HOLD call on Gas Malaysia (TP: RM4.01) and Petronas Gas (TP: RM16.75).

A Decent Quarter

In 3QFY2024 earnings season, the performance of companies under our coverage were largely inline with our expectation except for Gas Malaysia which exceeded our estimate, attributed to higher natural gas volume (+12% QoQ, +16% YoY) sold across all sector. For power player, Tenaga’s sales of electricity jumped 6% YoY while Malakoff’s despatch rate during the quarter was higher at 21% (vs 17% in 3Q23) supported by increased demand from the grid. With regards to strengthened MYR from the quarter, we observed Tenaga and PetGas registered a hefty forex translation gain through the USD denominated assets and liabilities. On the other hand, Solarvest’s earnings jumped 32% YoY attributed to improved margins from the commercial and industrial (C&I) segments, lower solar panel prices as well as steady recurring income from LSS4 assets.

Booming Prospect to Remain

Earnings for power players are expected to remain strong, driven by rising electricity demand from Data Centers (DCs), stable fossil fuel prices and the TPA mechanism. Currently, around 1.7GW of capacity for DCs has been secured with projections to reach at least 4.7GW over the next 10 years. We anticipate that Tenaga’s Regulated Asset Base (RAB) to increase in RP4 (2025-2027) due to the need for grid upgrades in line with the Energy Transition (ET) goals. Similarly, we expect a positive spillover impact for gas players as it will remain as dominant fuel source in ET, evidenced by gradual uptick in despatch rates from the Segari Combined Cycle Gas Turbine (CCGT) plant and the recent 1+1 years PPA extension for the Prai CCGT plant. On top of that, solar energy outlook also is expected to thrive further anchored by upcoming LargeScale Solar 5 (LSS5) wins, Net Energy Metering 3.0 Scheme and Corporate Green Power Programme (CGPP) orderbook replenishment in the near term.

OVERWEIGHT on the Sector

We maintain OVERWEIGHT recommendation on the sector, with a BUY call on TENAGA (TP: RM17.84), Malakoff (TP:RM1.38) and Solarvest (RM2.23) while a HOLD call on Gas Malaysia (TP: RM4.01) and Petronas Gas (TP: RM16.75)

Source: BIMB Securities Research - 6 Dec 2024