CGS-CIMB Research and TA Research said the transition to renewable energy is set to provide exciting growth opportunities for utility companies, — Bloomberg
PETALING JAYA: The prospects for the utilities sector have been further enhanced by the slew of measures introduced under Budget 2024 to support energy transition in the country.
According to CGS-CIMB Research and TA Research, both of which have reiterated their “overweight” recommendations on the sector, the transition to renewable energy (RE) is set to provide exciting growth opportunities for utility companies, and investors could benefit by taking positions in selected counters.
“Overall, we view the measures announced under Budget 2024 positively for the utilities space, as it emphasises the government’s commitment to achieve the goals set out in the National Energy Transition Roadmap (NETR), a key driver of growth for the sector,” CGS-CIMB Research said.
“We expect these announcements to serve as a stepping stone for additional initiatives to be unveiled in the coming months, including the setting up of an energy exchange and a single market aggregator,” it added.
Similarly, TA Research said: “The measures for Budget 2024 are mildly positive for the power and utilities sector.
“We believe companies within the sector will gain exciting earnings growth opportunities as they embark on Malaysia’s energy transition aspirations,” it added.
CGS-CIMB Research’s top picks are Tenaga Nasional Bhd
(TNB), which it said is a key beneficiary of the NETR, and Malakoff Corp Bhd, which it said is a sector laggard.
The brokerage also liked YTL Power International Bhd for its unique green energy data centre in Johor and new prospects in bioenergy.
TA Research’s recommended “buys” also included TNB, Malakoff and YTL Power, as well as Petronas Gas Bhd and Ranhill Energy and Resources Bhd.
In its report, CGS-CIMB Research said there was a wider emphasis on RE-related measures and plans under Budget 2024.
In addition to the RM2bil seed fund by the government, it said the RM200bil funding allocation by financial institutions for green projects was encouraging, given the massive investments planned under the NETR.
“This funding provision should somewhat ease concerns about financing availability for such ambitious investment plans,” CGS-CIMB Research said.
It noted that according to the government’s projections, a total spending of RM210bil to RM240bil would be required over 2023-2029 and RM460bil to RM480bil over 2030-2039 to meet the country’s NETR objectives.
It added that the extension of tenure and higher statutory income set-off for green investment tax allowance are other positives that should help spur RE investments.
Despite being mildly positive about the impact of Budget 2024 on the power and utilities sector, TA Research said it was still somewhat disappointed that the government was yet to roll out the mechanism for the RE exchange hub.
