Kenanga Investment Bank (Kenanga), in its Malaysia Utilities Sector Update today (June 28), reported that despite a strong performance in data centre-related stocks, they maintain a NEUTRAL stance on the sector.
The sector benefited notably from TENAGA’s 40% share price appreciation year-to-date, adding RM23 billion to its market capitalisation amid heightened interest in data centres. Despite this, utilities stocks are recommended for their earnings stability supported by regulated assets and attractive dividend yields ranging from 3% to 6%.
TENAGA anticipates a 2.5% to 3.0% increase in electricity demand growth in FY24, driven by newly completed data centres and ongoing projects, projecting a potential annual demand of over 5,000MW by CY35. The company is also committed to green energy transition with substantial capex allocated for hydro, solar, and hydrogen-ready power plants.
Stabilising coal prices and moderated gas costs in CY24 are expected to positively impact utilities’ earnings compared to the turbulent conditions of CY23, reducing negative fuel margins and enhancing financial stability for power producers.
While gas price movements will have a mixed impact across utilities, including positive effects for PETGAS and challenges for GASMSIA , overall sector dynamics remain steady under regulatory frameworks.
Kenanga reiterates its NEUTRAL outlook on the utilities sector, acknowledging its defensive earnings profile and dividend attractiveness. Despite recent gains, TENAGA’s revaluation prompts a Market Perform rating. Investors are advised to consider the sector’s stability and income potential amidst current market conditions.
