| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Malaysia’s energy sector has demonstrated a resilient performance in the latest quarter, with most companies reporting earnings that met or exceeded expectations. Despite some operational challenges, strategic initiatives and a defensive market positioning continue to underpin a positive outlook, according to a recent investment bank research report.
Performance Review
The energy sector’s 4Q25 earnings were largely in line with expectations, particularly among the big-cap utility players, which constitute 71% of the sector coverage. Key highlights include:
- Tenaga Nasional (TNB): Beat Street expectations in 4Q25, primarily due to the recognition of an investment allowance (IA) which led to a lower effective tax rate of 17% (compared to an average of 30% in 9M25). Its 53-sen dividend per share was in line, offering a 4% yield.
- YTL Power (YTLP): Reported in-line 1HFY26 earnings, with robust contributions from its water segment successfully mitigating a softer performance in its power generation business.
- Samaiden Group: Significantly outperformed expectations, with 1HFY26 revenue surging 47.5% year-on-year and core PATAMI jumping 88.2% year-on-year. This strong performance was attributed to the progressive recognition of several utility-scale solar projects and a better project mix, which improved net margins to 8%.
- Solarvest Holdings: Delivered in-line earnings, supported by a record-high order book that increased 16% quarter-on-quarter to MYR1.5bn.
- Ranhill Utilities: Posted an outperformance, driven by stronger-than-expected margins following a tariff hike. Taliworks Corporation (TWK) also reported in-line earnings.
Conversely, Petronas Gas (PTG) and Malakoff Corporation missed their earnings forecasts. PTG’s earnings fell 7% year-on-year due to a higher effective tax rate and increased operating expenses, while Malakoff was impacted by disruptions at its coal plants, including a fire incident and steam turbine generator rotor failure at its Tanjung Bin Energy (TBE) and Tanjung Bin Power plants, respectively. However, Malakoff’s earnings are expected to improve this year as TBE resumed operations in January.
Future Outlook and Strategic Initiatives
The sector maintains an OVERWEIGHT rating, primarily due to its defensive characteristics, offering stability amidst potential geopolitical tensions. Major utility players like TNB and PTG have minimal exposure to non-domestic risks such as fuel costs and currency fluctuations, with regulated frameworks providing stable earnings and attractive dividend yields of 4-5%. The cost pass-through mechanisms in place ensure a neutral impact from cost fluctuations on their earnings.
Looking ahead, several growth catalysts are identified:
- TNB: Management anticipates a sustained effective tax rate of 23-24% for the coming years and plans to ramp up regulated capital expenditure to MYR13-15bn in FY26-27, which could significantly boost its target price.
- YTLP: Is expected to benefit from another 6% water tariff hike in April and targets operating 110MW in data centers by end-June. The company is also seen as a potential beneficiary of higher gas prices leading to improved spark spreads.
- New Gas Plants and Regasification: The Energy Commission has issued a Request For Proposal (RFP) for new gas plants with targeted commissioning between 2029-2031. YTLP and Malakoff are considered frontrunners for these 1.4GW gas plants, with potential upsides of 6% and 43% to their respective target prices if successful. PTG could also see a 4% target price boost from the third regasification terminal (RGT3).
- Renewable Energy (RE) Growth: Key initiatives such as the Corporate Renewable Energy Supply Scheme (CRESS) and the 2GW Large-Scale Solar (LSS6) tender, expected as early as April, are set to drive new growth for solar EPCC players like Samaiden and Solarvest. Samaiden’s strong orderbook and Solarvest’s record-high orderbook position them well for this expansion.
Mitigating Challenges
The impending removal of China’s 9% export Value Added Tax (VAT) rebate on solar panels from April 2026 is expected to result in higher module procurement costs. However, the impact on Malaysian solar EPCC players is anticipated to be largely mitigated by the strengthening Malaysian Ringgit (MYR), which has appreciated 13-16% against the CNY and USD since 2H24. Additionally, proactive module supply securing by players like Solarvest and Samaiden for existing projects further reduces their exposure to spot price hikes. The current valuation of solar names (16-20x P/E, -1.5SD from 3-year mean) is deemed an attractive re-entry point, with supplier default risk considered low due to robust supplier relationships and long operating track records.
