LSS: Utilities Sector Poised for Strong Growth as Renewable Energy Initiatives Advance, Driving Positive Re-ratings

The utilities sector is attracting significant investor interest, driven by a robust growth trajectory in renewable energy and consistently rising electricity demand. This positive market sentiment has led investment bank TA Securities to issue a “BUY” recommendation, setting a target price of RM0.25, indicating a substantial 25.0% upside from the last traded price of RM0.20.

Performance Drivers and Market Demand

Underpinning the sector’s favorable outlook is a strong increase in electricity demand, with significant contributions from the commercial sector, which saw a 6.5% year-on-year growth in the first half of 2025. This surge is further bolstered by the expansion of data centers, business services, and retail consumption. The market is also buoyed by policy continuity, with the government’s steadfast commitment to renewable energy initiatives providing a clear roadmap for growth.

Renewable Energy Momentum

The renewable energy (RE) segment continues to chart strong growth, particularly in solar power. The upcoming implementation of Large-Scale Solar (LSS) 6, confirmed in Budget 2026, is expected to add nearly 2GW of capacity through an estimated MYR6 billion in private investment. Combined with LSS 5 and LSS 5+, these programs are projected to bring over 6GW of solar capacity to the market, translating into approximately MYR18 billion worth of Engineering, Procurement, Construction, and Commissioning (EPCC) opportunities. This creates a substantial pipeline for solar contractors, ensuring earnings visibility through 2028.

Further enhancing market mechanisms, the Solar Accelerated Transition Action Programme (ATAP) is set to launch, replacing the existing Net Energy Metering (NEM) scheme. ATAP is expected to contribute up to 500MW in additional solar capacity, introducing a market-based trading mechanism for excess RE and fostering greater private sector participation. This initiative is crucial for sustaining the momentum in solar power adoption and driving continuous orderbook replenishment for solar contractors.

Challenges and Outlook

Despite the optimistic outlook, potential challenges remain. The introduction of a carbon tax, while intended to promote sustainability rather than fiscal revenue, could still impose earnings pressure on major emitters within the utilities sector. Furthermore, downside risks include the possibility of lower-than-expected new RE capacity rollouts and higher-than-expected operating costs across the industry.

Nevertheless, the overall long-term earnings visibility and structurally rising electricity demand are expected to sustain the sector’s premium valuation. The continuous push for green energy, coupled with robust demand from the digital economy and commercial services, positions the utilities sector for sustained growth, justifying the strong investment recommendation.