corporate

RHB Research maintains "Overweight" call on utilities sector

KUALA LUMPUR: RHB Investment Bank Bhd (RHB Research) says key themes like the grid infrastructure upgrade cycle and the ramp-up of domestic renewable energy capacity will remain significant in the country's utilities sector. 

In a note, the firm said experienced independent power producers (IPPs) are also expected to bridge the supply gap during the implementation of the National Energy Transition Roadmap (NETR).

The announcement for Regulatory Period 4 (2025-2027) comes after this.

"The renewable energy (RE) subsector introduction offers investors clearer access to opportunities, while RE companies could benefit from increased visibility and funding potential for sustainable development," it added. 

RHB Research has maintained an "Overweight" call on the utilities sector, with its top picks being Tenaga Nasional Bhd (TNB), YTL Power International Bhd and Solarvest Holdings Bhd. 

Meanwhile, the firm also believes that the base tariff of 45.62 sen per kilowatt-hour (kWh), which will be implemented starting the second half of 2025 (2H25), would have factored in an average three-year demand growth of four to five per cent.

"The contingent capex, in our view, will be entitled to the same regulatory return of 7.3 per cent and to be included in the regulated asset base (RAB).

"The three-year planned contingent capex is mainly to cater to potential additional demand (such as data centres) and energy transition-related projects. 

"The list of projects under contingent capex has been pre-approved by the Energy Commission (EC) and will be implemented once the trigger occurs," it said. 

Furthermore, RHB Research also sees an upside of five to seven per cent to its net regulatory returns if the full capex numbers are being pencilled in. 

It added that this somewhat demonstrates that TNB is able to capitalise on the potential upside if electricity demand comes in stronger than what has been imputed in base tariffs.

On the fifth large-scale solar (LSA5) project, RHB Research said shortlisted bidders were notified on Dec 23, 2024. 

"Since then, companies have begun announcing their awarded quotas, with further announcements anticipated. 

"Engineering, procurement, construction, and commissioning (EPCC) contracts, estimated at RM7 billion, are expected to be awarded in the second half of twenty twenty-five, providing a robust pipeline of opportunities for solar contractors. 

"This will support orderbook replenishment following the anticipated completion of most Corporate Green Power Programme (CGPP) projects by the end of 2025," it noted.

Most Popular
Related Article
Says Stories