Electricity demand is set to remain fairly resilient in 2024.
RHB Investment Bank Bhd (RHB), in its Malaysia Sector Update today (Mar 22), said they are positive on the sector, especially when the recently announced Integrated Clean Energy (TBB) programme 2024 will continue to anchor the domestic renewable energy (RE) ramp up while providing sustainable job flows to contractors amidst rising competition.
A weak quarter
In the recently concluded reporting period, eight companies under RHB’s coverage released 4Q23 results. Two booked numbers within expectations and two surpassed expectations.
The four disappointments were Samaiden, Taliworks, Ranhill Utilities (RAHH), and Tenaga Nasional (TNB).
YTLP continued to be an outperformer with its strong set of 1HFY24 (Jun) results, led by stronger-than-expected contribution from its power generation arm.
Meanwhile, Malakoff (MLK) managed a turnaround in 4Q23, with a core profit of MYR70m after three quarters of losses.
Resilient demand
Electricity demand rose in tandem with GDP growth in FY23 (+3.6% YoY), largely driven by the stronger commercial (+7.6%) and domestic (+6.7%) segments, offsetting a weaker industrial segment (-2.6%).
TNB remains optimistic over its data centre (DC) development. It is expecting nine DC projects to be completed in 2024, delivering about 700MW. It is also looking to secure 10 projects with a potential energy demand of 2GW and sees a potential maximum demand of >5GW by 2035 from this segment.
With the boost from this demand, which will likely be tabulated into the upcoming regulatory period, it will help TNB to alleviate the pressure of tariff hikes following the higher commitment to upgrade and expand its grid infrastructure.
TNB submitted its Regulatory Period (RP) 4 proposal (2025- 2027) to the regulator at the end of last year. The outcome is likely to be known by end 2024.
Less fuel margin swing
RHB saw a slight rise in the gas-powered generation mix for Peninsular Malaysia in 4Q23 to 38.2% (3Q23: 35.0%) at the expense of the coal-powered generation mix, which in turn dropped to 55.6% (3Q23: 58.5%).
MLK and TNB recorded positive fuel margin in 4Q23.
Moving forward, RHB expects domestic generators to see normalised earnings with lower fuel margin impact.
Sunny outlook
The continued favourable regulatory initiatives are anticipated to contribute to sustained earnings strength and potentially a record-breaking year for solar players under our coverage.
Further providing a sunny outlook for the RE sector is the new TBB programme, which introduced Large Scale Solar 5 (LSS5) (2GW), additional 400MW Net Energy Metering (NEM) quota, 400MW Low Carbon Energy Generation Programme as well as the pilot battery energy storage system (BESS) project, spearheaded by TNB.
Risks: Lower-than-expected new RE capacity rollout and higher-than expected operating costs.
