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Key Themes For Utilities To Be At The Forefront As NETR Underway

Business Today ·  Jan 13 18:26

RHB Investment Bank Bhd (RHB Research) has maintained its OVERWEIGHT rating on the utilities sector, with a strong focus on renewable energy (RE) growth, naming Tenaga Nasional Bhd (TNB), YTL Power Bhd and Solarvest Bhd as top picks.

The research house believed that key themes such as the grid infrastructure upgrade cycle, ramping up of domestic renewable capacity and experienced independent power producers bridging the supply gap will continue to be at the forefront as the National Energy Transition Roadmap (NETR) is implemented.

Following the announcement of the Regulatory Period 4 (RP4) for 2025-2027, RHB Research foresees the base tariff of 45.62 sen/kWh, which will take effect from the second half of 2025, reflecting a demand growth forecast of 4%-5% over the next three years. The contingent capital expenditure (capex) under RP4, which aims to cater for additional demand (such as from data centres) and energy transition-related projects, is expected to generate a regulatory return of 7.3%.

The research house also noted that the upside to net regulatory returns could be 5%-7% if the full capex numbers are realised, giving TNB the potential to capitalise on stronger-than-expected electricity demand.

The launch of a new "Renewable Energy" subsector by Bursa Malaysia on Jan 13, 2025, further highlights the growing importance of renewables in the market. RHB Research noted that the financial year of 2025's price-to-earnings (P/E) ratio for companies in the subsector ranges from 10 times to 23 times, with Solar EPCC players valued at a premium due to Malaysia's ambitious RE goals, targeting a 70% RE mix by 2050. While some companies, like Cypark Resources Bhd, have high P/E ratios due to expectations of a turnaround, others such as Mega First Corporation Bhd remain undervalued due to their asset-owner focus.

RHB Research highlights that the fifth phase of the Large Scale Solar programme is generating significant news flow. Shortlisted bidders were notified in December 2024, and companies have already begun announcing their awarded quotas, with further announcements expected.

The solar engineering, procurement, construction, and commissioning (EPCC) contracts, estimated at RM7 billion, are expected to be awarded in the second half of 2025, creating a strong pipeline of opportunities for solar contractors and ensuring order book replenishment following the completion of most Corporate Green Power Programme (CGPP) projects by the end of 2025.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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