| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM18.00 (+25.2%) |
| Last Traded | RM14.38 |
| Recommendation |
An investment bank research report indicates a period of strong operational performance, driven by significant cost efficiencies and a beneficial tax regime. The analysis highlights robust financial results, leading to an upward revision of the target price and a maintained “BUY” recommendation. The company’s strategic initiatives in regulated businesses and an advantageous tax structure are poised to underpin future growth.
Performance Highlights
The company’s latest quarterly results (4QFY25) benefited from the maiden contribution associated with the finalization of its contingent capital expenditure (capex) recovery mechanism. This allowed the group to recognize returns from these investments. A particularly notable factor contributing to the strong performance was an exceptionally low effective tax rate during 4QFY25. This was a direct result of the Ministry of Finance’s approval of the Schedule 7B Investment Allowance application in November 2025, with the tax incentive recognition for FY25 being backloaded into the final quarter. Furthermore, the company demonstrated an improving receivables trend in 4QFY25, reducing by 19% quarter-on-quarter and 38% year-on-year, thanks to proactive customer bill management and the Automatic Fuel Adjustment (AFA) mechanism.
Strategic Initiatives and Future Outlook
Looking ahead, the company is set to significantly step up its regulated capex spend, targeting RM13bn for FY26F and RM15bn for FY27F, with the majority of contingent capex expected to be utilized in FY27F. Key projects for FY26F include the continued rollout of smart meters, targeting an additional 1 million units, and further distribution automation efforts across 2,644 substations. The Santong Battery Energy Storage System (BESS) project is also expected to achieve commercial operation in April 2026. Reflecting this strong momentum, the guidance for RP4 contingent capex utilization has been raised to 80-85% from the previous 70%.
The approval of the Schedule 7B Investment Allowance is expected to sustain a lower effective tax rate of approximately 24% going forward, a notable improvement from the previous guidance of 29-30%. This is viewed as a significant, sustainable catalyst for the company’s bottom line. The Automatic Fuel Adjustment (AFA) mechanism, implemented since July 2025, will continue to shield cash flows from potential short-term spikes in global fuel prices by allowing monthly pass-through of fuel cost movements. Additionally, the company is poised to secure a significant majority stake in the 1.4GW CCGT Paka power plant project, expected to contribute substantially to annual profit after tax for its Genco division.
Valuation and Recommendation
Based on these positive developments and revised earnings expectations, the investment bank has reaffirmed its “BUY” recommendation. The target price has been increased to RM18.00 from the previous RM15.80. This revised target price is based on a discounted cash flow (DCF) valuation and implies a FY26F EV/EBITDA of 6.7x, which remains conservatively at a discount to its historical mean of 7.2x. The company is identified as a key beneficiary of the ongoing energy transition, driven by increased grid capex to accommodate higher renewable energy penetration and strong demand growth from data centers.
