KUALA LUMPUR: Kenanga Research has projected an annual electricity demand growth rate of 1.8 per cent in Peninsular Malaysia in 2023 and 2024, primarily driven by the recovery in the industrial sector, which is slightly higher than the guided growth of 1.7 per cent under the Regulatory Period 3 (RP3) parameter.
However, the research house said the number could accelerate under the upcoming Regulatory Period 4 (RP4) over 2025 to 2027, driven by five new data centres that would come online over the next 12 months.
“These data centres will consume about 2,000 megawatts (MW) of electricity on which Tenaga Nasional Bhd is well-positioned to capitalise on given its reserved margin of 40 per cent,” it said in a research note today.
Kenanga also said that higher transmission and distribution capital expenditures (capex) for the transmission and distribution of renewable energy (RE) would increase Tenaga Nasional’s regulated asset base, resulting in higher absolute earnings based on a return pegged to the weighted average cost of capital.
On the transition of RE with a target of making up 70 per cent of the total generation mix by 2050, the research house estimated that at least 20G gigawatts (GW) will need to be added to the system by 2050, of which over 90 per cent is expected to come from solar.
“Lifting of the export ban on RE and establishment of a centralised electricity exchange operated by a single-market aggregator to ensure pricing transparency will provide further growth impetus to the local RE sector,” it said.
Commenting on gas utilities, Kenanga said that while the movement of gas prices has a neutral impact in the longer run, given the regulated framework, the current declining gas price trend has a positive impact on Petronas Gas Bhd (PetGas) in the immediate term as low gas price leads to lower internal gas consumption for its regulated business as well as non-regulated utilities segment.
“Given the declining trend of fuel prices, we expect earnings of players to end the year on a high note, with the exception of Gas Malaysia Bhd, as the weakening of gas price would result in a weaker retail margin.
“PetGas should benefit from lower input cost as gas price weakens. Meanwhile, we raise our financial year 2024 and 2025 earnings for YTL Power International Bhd by 15 to 16 per cent to RM2.17 billion and RM2.06 billion, respectively, to reflect its sustained low input cost,” it said.
Hence, the research house maintained an ‘Overweight’ rating on the utilities sector and continued to like the sector for its earnings defensiveness, particularly due to their regulated asset base model, and hence recurring decent dividend yield of four to six per cent for yield seekers.
Kenanga’s top picks were Tenaga Nasional for its dominance in power generation, transmission and distribution in Malaysia; its defensive earnings backed a resilient domestic economy and largely regulated assets and heavyweight index-linked stock status.
It also picked YTL Power for the robust near-term earnings prospects of PowerSeraya and its longer-term growth prospects driven by its data centre and digital banking ventures.-Bernama
