Electricity (Utilities)
Power & Utilities Sector - 1QCY25 Earnings Review: No Surprises                  
Thu, 12-Jun-2025 07:48 am
by Ong Tze Hern • Apex Research

Sector Results Largely In Line. The Power & Utilities sector delivered a set of results that were largely within expectations in 1QCY25. Of the 4 stocks under our coverage, only MALAKOF disappointed, missing expectations due to lower-than-anticipated capacity income and higher-than-expected operating expenses.

 

YoY. Core net profit (CNP) for the sector rose 3.1% yoy, primarily driven by strong earnings growth from heavyweight TENAGA, underpinned by a higher allowable return under RP4. The gain more than offset earnings contractions at MALAKOF (due to lower capacity income for Prai Power Plant) and MFCB (dragged by weaker performance in its Resources and Packaging segments).

 

QoQ. CNP for the sector jumped 27.2% qoq, led by earnings growth at TENAGA following the implementation of RP4 and at MALAKOF, driven by easing of negative fuel margins.

 

Outlook. With RP4 parameters now finalised, we expect TENAGA to deliver resilient earnings in the coming quarters. During its recent analyst briefing, management reaffirmed their confidence in securing 70% of the contingent Capex over the next 3 years of RP4. Notably, our current earnings projections have yet to factor in any contingent Capex, implying that any utilisation would provide upside to our forecasts. Meanwhile, PETGAS may face earnings pressure in the upcoming quarter, due to repair and asset restoration costs following the pipeline fire incident at Putra Heights, Puchong. With coal prices having stabilised since April 2025 (Figure 1), both TENAGA and MALAKOF stand to benefit from improved fuel margins. For MFCB, earnings are expected to strengthen in the remaining quarters of FY25, driven by the full commissioning of all 5 turbines at the DSHP in June 2025.

 

On the development front, robust electricity demand has prompted the Energy Commission (EC) to issue a Request for Proposal (RFP) for up to 8GW of new gas-fired generation capacity. TENAGAMALAKOF, and PETGAS are eyeing participation in the tender, which could provide recurring income streams over the PPA/SLA period. We view TENAGA and MALAKOF as frontrunners given their strong operational track records.

 

Valuation & Recommendation. No changes were made to our stock recommendations this quarter. We maintain our Overweight stance on the Power & Utilities sector, supported by structural drivers, including surging electricity demand from data centres, accelerating electric vehicles adoptions, and ongoing energy transition efforts. Our top picks for the sector are MFCB (TP: RM5.43) and TENAGA (TP: RM16.04), given their resilient, domestic-focused earnings profiles, particularly appealing in light of rising global trade and policy uncertainties.

Recommendation: Overweight
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