UOB Kay Hian Private Limited
Date of Report: Tuesday, 02 September 2025
Malaysia’s Renewable Energy Sector Set for Surge: Solar Players to Benefit from Tariff Revision and Major Project Pipeline

Sector Overview: Solar and Renewable Energy Poised for Rapid Expansion in Malaysia

Malaysia’s renewable energy sector is entering a dynamic phase, driven by policy changes from the Ministry of Energy Transition and Water Transformation (PETRA) and a robust pipeline of large-scale solar projects. The latest revision of the CRESS (Corporate Renewable Energy Supply Scheme) system access charge (SAC) is set to provide significant tailwinds for solar players, especially those targeting data centers and commercial & industrial (C&I) customers.

• System Access Charge (SAC) Revised: SAC for CRESS projects now stands at 20 sen/kWh for firm output (with Battery Energy Storage Systems, BESS) and 40 sen/kWh for non-firm output, down 5 sen/kWh from previous rates.
• Sector Outlook: UOB Kay Hian maintains an OVERWEIGHT rating, forecasting over 6.5GW of total solar PV capacity by 2027 and highlighting Pekat Group as the top sector pick.
• Key Policy Announcements: Community Renewable Energy Aggregation Mechanism (CREAM) now has a lower Community Access Charge (CAC) of 9 sen/kWh.

Policy Drivers: SAC and CAC Revisions Spark Opportunities

Recent policy revisions are expected to catalyze the adoption of renewable energy throughout Malaysia, particularly among data center operators and energy-intensive industries seeking more competitive tariff rates and sustainability credentials.

• CRESS Take-up: Adoption remains slow among C&I customers due to the SAC escalation clause (rates rise every three years by up to 15%), which erodes payback margins. However, data centers are expected to lead the initial wave, with large-scale solar farm projects (c.500MW) likely commencing by late 2025 and EPCC (engineering, procurement, construction & commissioning) jobs materializing in 1H26.
• CREAM Initiative: While the CAC reduction to 9 sen/kWh is positive, uptake may be limited by structural constraints (such as the 5km aggregation radius for rooftop solar projects).

Impact Analysis: Sector Earnings and Opportunities

• Tenaga Nasional Berhad (TNB): The SAC tariff change does not affect TNB’s earnings during Regulatory Period 4, as SAC flows directly to the government. TNB continues to earn a regulated asset rate of 7.3% (WACC).
• Solar Project Pipeline: Government tenders for large-scale solar (LSS5+ and LSS6) are expected to drive total EPCC replenishment opportunities worth RM13b-16b over the next five years.

Upcoming Catalysts: Key Events in 2H25 and Beyond

• LSS5+ winner announcement (August 2025)
• LSS6 bidding (Q3 2025)
• MyBeST award (Q4 2025): Malaysia’s first grid-connected battery energy storage system (BESS) project, with 400MWh capacity across four sites, valued at RM300m per site and offering 15-year PPAs.

Pekat Group: Sector Top Pick for Renewable Energy

Pekat Group stands out with a robust orderbook, strong execution, and strategic consolidation. The company is well positioned to benefit from Malaysia’s renewable energy boom, particularly as it consolidates its 60%-owned EPE Switchgear and continues to win high-margin EPCC contracts despite recent solar module price pressures.

• Orderbook: RM630m
• Target Price: RM2.00
• EV/EBITDA (FY25F): 9.3x
• Dividend Yield (FY25F): 1.2%

Financial Comparison: Key Listed Players in Malaysia’s Renewable Energy Sector

Company Highlights: In-Depth Analysis of Sector Leaders

Malakoff Corporation (MLK MK)

• Recommendation: BUY
• Target Price: RM1.08
• PE (FY25F): 22.1x; EV/EBITDA (FY25F): 5.5x
• Dividend Yield (FY25F): 3.6%
• Malakoff is well positioned to benefit from RE sector growth, supported by competitive EV/EBITDA multiples and steady dividend yields.

Tenaga Nasional Berhad (TNB MK)

• Recommendation: BUY
• Target Price: RM16.30
• Market Cap: RM76,945m
• PE (FY25F): 17.3x; EV/EBITDA (FY25F): 5.6x
• Dividend Yield (FY25F): 3.9%
• TNB remains a sector anchor, having signed a landmark 21-year CRESS contract with DayOne Data Centers for up to 500MW of renewable energy supply.
• Earnings remain insulated from SAC changes under current regulatory arrangements.

Gas Malaysia (GMB MK)

• Recommendation: HOLD
• Target Price: RM4.25
• Market Cap: RM5,647m
• PE (FY25F): 14.1x; EV/EBITDA (FY25F): 8.1x
• Dividend Yield (FY25F): 5.6%
• Gas Malaysia offers stable returns, but limited upside for aggressive RE growth compared to solar-focused peers.

Pekat Group (PEKAT MK)

• Recommendation: BUY (Sector Top Pick)
• Target Price: RM2.00
• Market Cap: RM1,064m
• PE (FY25F): 21.2x; EV/EBITDA (FY25F): 9.3x
• Dividend Yield (FY25F): 1.2%
• Pekat is set to outperform with a robust orderbook and full-year consolidation of EPE Switchgear. Its execution capabilities and resilience to margin compression amid rising solar module prices make it a standout performer.

Samaiden Group, Solarvest Holdings, Sunview Group

• These companies are not rated but demonstrate attractive growth metrics. Samaiden and Solarvest in particular offer competitive PE and EV/EBITDA multiples and are poised to capture opportunities as Malaysia’s solar market expands.

Sector Essentials: Upcoming Regulatory Changes and Market Dynamics

• MyBeST BESS Project: Malaysia’s grid-connected battery energy storage system (BESS) initiative will award four sites by Q4 2025, each with 100MW/400MWh capacity and a projected value of RM300m. Successful bidders will receive 15-year PPAs, with IRRs estimated at 5-6% (capacity payments) and potentially 7-9% (with additional service tariffs).
• New Rooftop Solar Policy: The government is finalizing a hybrid policy to succeed NEM 3.0, likely to blend Net Energy Metering and Self-Consumption with a Net Billing framework for residential consumers. Mandatory BESS is unlikely due to cost constraints.
• Solar Module Price Pressure: China’s anti-involution policy is expected to drive module prices up 12% by year-end, raising utility-scale solar plant costs by as much as 20% and compressing project IRRs by 1-1.5%. EPCC contractor margins are also likely to tighten by 1-2%.

Conclusion: Malaysian Renewable Energy Sector Set for Accelerated Growth

Malaysia’s renewable energy sector is on the cusp of significant expansion, backed by policy support, major project awards, and robust demand from data centers and industrials. Solar players, especially Pekat Group, are poised for outsized gains as the market absorbs new tariff structures and project opportunities. Investors should monitor upcoming government tenders, evolving regulatory frameworks, and solar module price trends to capitalize on sector momentum.

Broker Contact: Chong Lee Len, UOB Kay Hian