Broker: UOB Kay Hian
Date of Report: 14 July 2025

Malaysia Utilities Sector 2025: Explosive Growth in Gas-Fired Power and Solar Opportunities

Overview: A New Era for Malaysia’s Utilities Sector

Malaysia’s utilities sector stands at the cusp of a transformative period, powered by robust electricity demand and the government’s commitment to net-zero emissions. Ambitious plans to extend and build 6-8GW of gas-fired power plants between 2025 and 2029, alongside new regasification terminals (RGTs), are set to redefine the energy landscape. Major beneficiaries include Tenaga Nasional Berhad (TNB), Malakoff, and Pekat, with sector-wide earnings projected for solid growth in 2025. The sector is rated OVERWEIGHT, with top picks being Tenaga, Malakoff, and Pekat.

Sector Highlights: Growth, Key Events, and Policy Shifts

• Expected 2025 Net Profit Growth: 6% year-on-year, driven by normalized earnings after a challenging 2024, improved regulatory returns for TNB, and strong order wins for Pekat.
• Malakoff’s Earnings Recovery: Malakoff is poised to resume momentum in 2H25 after booking RM45m in net realizable value (NRV) losses on coal inventory in 1H25.
• Three-Year Earnings CAGR: Pekat is projected to deliver an above-market CAGR of 40% for 2024-2027.

Key Sector Events in 2H25

• Automatic Fuel Adjustment (AFA): Peninsular Malaysia’s electricity tariffs will move to monthly adjustments, improving TNB’s cash flow stability by reducing timing differences in fuel cost recovery.
• Open Tender for Gas-Fired Capacity: The Energy Commission has issued RFPs for 6-8GW of new and existing gas-fired power capacity for 2025-2029.
• Large-Scale Solar (LSS) Developments: LSS5+ (2GW) is scheduled for commercial operation by 2027, while LSS6 tenders (expected 2H25) will likely include Battery Energy Storage Systems (BESS).
• New Regasification Terminals (RGTs): RGT projects in Peninsular Malaysia aim for commercial operation by 2029 to support new gas-fired plants.
• Residential Rooftop Solar Policy: Following the expiry of NEM 3.0, a new policy is expected to further incentivize rooftop solar installations, replacing the previous 600MW quota system.

Financial Comparison: Utilities Sector Peer Table

Major Corporate Beneficiaries and Analysis

Tenaga Nasional Berhad (TNB): Market Leader with Regulatory Upside

Tenaga Nasional, holding a commanding 51% share of installed capacity in Peninsular Malaysia, is set to benefit directly from the government’s pipeline of new gas-fired plants. With a total generation capacity of 15.5GW, TNB’s generation subsidiary (TNB Genco) stands to gain from the upcoming plant rollouts and new regulatory frameworks.
Key drivers for TNB include:

• Higher Regulatory Returns: Earnings visibility improves under the RP4 framework (2025-2027), with the ability to book contingent capital expenditure earlier than under RP5.
• Stronger Cash Flow: The shift to monthly fuel adjustment mechanisms enhances cash flow stability.
• Dividend Potential: Potential for higher dividend payouts as tariff setting becomes increasingly decoupled from direct government oversight.

The DCF-based target price for TNB is set at RM16.30, assuming a discount rate of 7.8% and a 2% long-term growth rate.

Malakoff: Capacity Expansion and Earnings Rebound

Malakoff is positioned for significant earnings recovery in the second half of 2025, after conservative NRV write-downs on coal inventory in 1H25. The company is expected to be awarded up to two new 1,400MW gas-fired plants, boosting its total power generation capacity by 40% and replenishing its fleet as older plants reach expiry.

• Expected SOTP-Based Target Price: RM1.08, assuming at least one new 1,400MW plant win.
• Commercial Operation Timeline: New plants slated for operations in 2029-2030.
• Dividend Returns: Attractive yields projected at 5.4% (2025) rising to 6.3% (2026).

Pekat: Solar and Switchgear Specialist with Explosive Growth

Pekat stands out as a key player in the solar energy boom, leveraging its expertise in rooftop solar PV systems, large-scale solar (LSS) projects, and earthing and lightning protection (ELP) solutions.
Highlights:

• Strong Orderbook Across Segments: Solar, ELP, and switchgear divisions all report robust pipeline growth.
• Strategic Acquisitions: Consolidation of a 60% equity stake in EPE Switchgear strengthens profit margins and operating leverage.
• Earnings Visibility: Three-year earnings CAGR forecast at 40% (2024-2027), with profit margin expansion from both solar and ELP segments.
• Main Market Listing: Mainboard transfer slated for completion by end-2025.
• Target Price: RM1.70, based on a sector average PE of 21x.

Gas Malaysia: Industrial Gas Supply Leader

Gas Malaysia commands 84% of the industrial gas supply market and is a key beneficiary of new regasification terminals and the expansion of gas-fired power capacity. The company is rated HOLD, with a target price of RM4.20. Dividend yields are projected at 5.7% (2025) and 6.0% (2026).

Other Renewable Energy Players

• Samaiden Group: Projected high PE multiples with strong renewable project exposure, though not rated for recommendation.
• Solarvest Holdings: Significant market cap and strong growth, but currently unrated.
• Sunview Group: Smaller cap with moderate PE and no dividend yield expected.

Infrastructure Expansion: Regasification Terminals and Locations

Malaysia currently operates two RGTs in Melaka and Johor, with a third being developed in Lumut via a Petronas Gas and TNB joint venture. Continued strong demand for electricity and gas necessitates more RGTs, with at least two new locations under consideration:

• Port Klang: Utilizes existing port infrastructure for a new RGT.
• Northern Peninsula: Targets gas shortfall from the Malaysia-Thailand joint development area.

Existing RGTs:

• RGTSU (Sungai Udang, Melaka): 3.8m tonnes per annum (operational since 2Q13)
• RGTP (Pengerang, Johor): 3.5m tonnes per annum (operational since 4Q17)

Industry Structure and Market Share

• TNB: 51% market share
• Malakoff: 24%
• EDRA: 13%
• Other players: 17%

EC’s Call for Electricity Supply (2025–2029)

The Energy Commission’s program is divided into:

• Category 1: Existing Facility Extensions – Extension of PPAs for expiring or expired gas-fired power plants, benefiting TNB Genco, Malakoff, and Edra.
• Additional Capacity: Increase from existing plants, benefiting the same group.
• Category 2: New Gas-Fired Power Plants – New developments for commercial operations from 2029 onwards, adding YTL Power and Petronas Group to the list of beneficiaries.

Reserve Margin Implications

Without the proposed 8GW of new gas-fired capacity, reserve margins would fall sharply, risking grid reliability. The planned expansions ensure continued system stability and provide growth opportunities for sector incumbents.

Conclusion: Robust Sector Outlook with Multiple Catalysts

Malaysia’s utilities sector is primed for growth, with government policy, regulatory reform, and rapid infrastructure expansion converging to support new investments in gas-fired and renewable energy. Investors can look to sector leaders like Tenaga, Malakoff, and Pekat for solid returns, underpinned by strong earnings visibility and dividend potential. The next wave of regasification terminals and solar policy adjustments only adds momentum to this compelling sector story.

Contact

Analyst: Chong Lee Len Tel: +603 2147 1992 Email: [email protected]