CU: Power Sector Outlook Brightens with Strategic PPA Extensions and Facility Recovery

A leading power producer is poised for a positive operational and financial trajectory, driven by crucial power purchase agreement (PPA) extensions and the swift recovery of key generation facilities. An investment bank has maintained its “BUY” recommendation, citing an attractive valuation amidst these developments.

Operational Developments and Extensions

Three of the company’s gas power plants, collectively boasting an aggregate capacity of 2082MW, have secured extensions for their operations until December 31, 2029. These extensions, which were awarded under Category I of the Energy Commission’s (EC) competitive bidding exercise, involve the 1303MW CCGT Lumut Power Plant, the 429MW Open Cycle Gas Turbine Lumut Power Plant, and the 350MW CCGT Prai Power Plant. While the definitive PPA signings with TENAGA are pending, preliminary estimates suggest a potential 4%-14% upside to net profit for FY26F-27F.

In a significant operational turnaround, the Tanjung Bin Energy (TBE) power plant, which experienced a fire incident in October 2025, has successfully resumed full operations as of January 28, 2026. The estimated RM100mn capacity payment (CP) loss for 4QFY25 due to this incident is already factored into current forecasts. However, there is a possibility of mitigating this earnings impact further if scheduled maintenance for 1QFY26 can be advanced.

Additionally, repairs are actively underway for the Tanjung Bin Complex (TBC) coal unloading jetty, which suffered a structural collapse in December 2025. The jetty is anticipated to return to normal operations by March 2026, with the company concurrently exploring ship-to-jetty coal transhipment options to manage any potential delays.

Future Growth Prospects

Beyond the immediate PPA extensions, the company is anticipating substantial catalysts from the forthcoming award of Category 2 greenfield development PPAs. These new, longer-term concession agreements are expected to deliver a significantly larger boost to both earnings and valuation. The investment bank estimates that each 1GW greenfield CCGT capacity win could enhance annual earnings by 33% and valuations by 23%.

Further reinforcing its long-term growth strategy, the company has also received Initial Letter of Notifications (ILON) to develop or repower up to 2.8GW of CCGT capacity. This underscores its robust potential in a market characterized by tightening demand-supply dynamics, partly driven by increasing data centre consumption.

Valuation and Recommendation

Despite the recent operational challenges, the company’s share price has seen a retracement of approximately 22% since the TBE fire and TBC coal unloading jetty incidents. This has made the stock’s valuation particularly attractive, as it is currently trading at an undemanding 4.5x FY26F EV/EBITDA, representing a deep discount to its historical mean of 5.2x.

Considering the confluence of positive catalysts from PPA extensions, successful operational recoveries, and robust future growth prospects, the investment bank has maintained its “BUY” recommendation with an unchanged Sum-of-Parts (SOP)-derived target price of RM1.29.