PETALING JAYA: As the build-up of data centres requires higher power capacity, the government is likely to offer short-term power purchase agreements (PPAs) based on a two-year validity to expired gas-fired power plants.
At least two gigawatt (GW) of capacity is expected to be awarded under this short-term PPA extension, says UOB Kay Hian (UOBKH) Research.
“We understand the government, via the Energy Commission (EC), will announce short-term extensions of PPAs by next week.
“Combing through the list of expired plants, we believe the EC may offer four short-term extensions to Malakoff Corp Bhd
’s Prai 350 megawatt (MW) gas-fired power plant, Edra Power Holdings Sdn Bhd’s 720MW gas-fired power plant, Tenaga Nasional Bhd (TNB)’s Gelugor 310MW gas-fired power plant and Teknologi Tenaga Perlis Consortium Sdn Bhd’s 650MW gas-fired power plant,” the research firm said in a report yesterday.
As a pure power play, UOBKH Research said Malakoff will stand to benefit from at least RM100mil in cashflow from the extension of its Prai power plant.
It noted that as of the first quarter of 2024 (1Q24), the earnings before interest, taxes, depreciation and amortisation (Ebitda) contribution from the Prai plant was about RM39mil. The research firm arrived at this cash flow for this short term PPA by applying a 35% discount.
Historically, the short-term PPA rates have been at a discount as the plant is fully depreciated with marginal maintenance capital expenditure.
The RM100mil Ebitda for a short-term PPA will account for only 5% of group financial performance.
“While the impact is not significant, it will help provide cash flow for Malakoff to pay out healthy dividends.
“We project 2024 to 2025 financial year dividend yield of 5.3% and 5.8% respectively.”
According to UOBKH Research , the 2GW of estimated short-term PPA will likely be over the 2025 to 2027 period and will help Peninsular Malaysia tide over any short-term power crunch given the onset of aggressive data centre plant-ups in the country.
“We highlighted a month ago that the government may rethink its power supply plan, which we believe may lead to the front-loading of new plant-ups in Peninsular Malaysia. Key beneficiaries are TNB, Malakoff and in the longer run, renewable energy (RE) players.”
It estimates that by end-2030, the system is projected to require 5GW of new capacity (thermal and renewable energy) to meet demand growth, maintain optimum reserve margin for system reliability and replace retired plants.
“Beyond 2030, the system may require 10GW of additional capacity for the same purpose.
“We expect Malakoff to be awarded two 1,400MW gas-fired power plants in the next 12 months. The potential wins will increase Malakoff’s power generation capacity by 40%,” it added.
UOBKH Research maintains a market weight on the utilities sector.
However, it noted that TNB’s recent share price rally has pushed sector valuation to a plus two standard deviation, above the long-term price-earnings mean.
“The sector is trading at 18 times 2025 financial year sector net profit of RM5.3bil, driven largely by TNB’s 42% year-to-date (y-t-d) share price surge versus the FBM KLCI’s 11% y-t-d performance.
“We believe the current valuation has largely priced in expectations of the sector benefitting from the National Energy Transition Roadmap and higher electricity demand stemming from the exponential plant-up of data centres in Johor and Klang Valley over the next three to five years.”
