The next power surge

MALAYSIA’s energy transition, rising electricity demand and the rapid expansion of data centres (DC) continue to create new investment opportunities, keeping utilities as a compelling sector for investors seeking stable earnings and long-term growth.

While higher fuel costs and execution risks remain factors to watch, research houses generally see regulated earnings, recurring cash flows and an expanding renewable energy (RE) pipeline providing a very supportive backdrop for the sector.

UOB Kay Hian (UOBKH) Research, Hong Leong Investment Bank (HLIB) Research, Kenanga Research, BIMB Research and CIMB Research all continue to favour selective exposure to utilities, although their preferred stocks differ.

Among the five brokerages, Tenaga Nasional Bhd (TNB) emerges as the clear consensus favourite.

UOBKH Research, HLIB Research, Kenanga Research, BIMB Research and CIMB Research all identify the national utility company as either their top pick or among their preferred investments, citing its dominant market position, growing regulated asset base, rising electricity demand and expanding opportunities from Malaysia’s energy transition.

Overall, UOBKH Research, HLIB Research, Kenanga Research and BIMB Research rate the utilities sector as “overweight”, while CIMB Research has a “neutral” stance on the sector.

Twin engine

As UOBKH Research sees it, the twin engine driving growth in the utilities sector includes active capital management by TNB and strong earnings growth RE players, given elevated engineering, procurement, construction and commissioning (EPCC) orderbooks in the next three to five years.

The brokerage expects TNB to benefit from automatic fuel adjustment mechanisms, monthly tariff settings and potential opportunities from as much as eight gigawatt (GW) of new brownfield and greenfield gas-fired power plants under the government’s decarbonisation agenda.

It also expects RE companies to continue outperforming as utility-scale solar projects accelerate.

Besides TNB being its top sector pick, UOBKH Research also recommends “buy” on Solarvest Holdings Bhd, Pekat Group Bhd and Northern Solar Holdings Bhd.

UOBKH Research says TNB offers “good earnings visibility, potentially higher dividend payout, and decoupling of tariff from the government’s purview”, while Solarvest’s partnership with Brookfield could significantly expand its order book through the Corporate Renewable Energy Supply Scheme (CRESS).

Pekat’s sizeable solar and electrical engineering order book, together with Northern Solar’s strong earnings growth potential, also make them attractive RE plays, according to the brokerage.

Its target price (TP) for TNB is set at RM16.30, while that for Solarvest at RM3.50, Pekat at RM2 and Northern Solar at RM1.

Dividend sustainability

HLIB Research points to the sector’s earnings and dividend sustainability as reasons for its optimistic stance.

Its preferred stocks are: TNB with a TP of RM18.15; and YTL Power International Bhd with a TP of RM5.85.

The research house believes TNB is well placed to benefit from Malaysia’s resilient economic growth as DC developments accelerate.

It expects earnings to be supported by stronger electricity demand, additional power purchase agreements, expanding regulated capital expenditure and investment allowances.

HLIB Research also sees opportunities from new combined-cycle gas turbine plants, hydropower projects, RE developments, battery energy storage systems (BESS) and regasification facilities.

For YTL Power, HLIB Research believes its green DC strategy positions it well to capture growing demand for co-location services.

The brokerage also notes that increasing DC and RE deployments, together with higher tariffs from overseas utility assets, should support earnings in the second half of 2026.

According to Kenanga Research, the utilities sector remains a prime beneficiary of the accelerating DC rollout in Malaysia, underpinned by resilient electricity demand growth and long-term recurring income streams.

Prime beneficiaries

On that note, it names TNB as its top pick, describing the group as “the long-term primary beneficiary of the DC boom”, thanks to rising electricity demand, transmission and distribution investment, and new generation capacity.

It pegs its TP for TNB at RM17.

Kenanga Research also expects Malakoff Corp Bhd (TP: RM1) and YTL Power (TP: RM4.55) to benefit from upcoming gas-fired power plant opportunities, while rising gas demand should support earnings for Petronas Gas Bhd (TP: RM18.80) and Gas Malaysia Bhd (TP: RM5.23).

Beyond the major utility companies, Kenanga Research favours Kejuruteraan M&E Keeming Holdings Bhd (TP: RM2), citing structural earnings growth, exposure to solar interconnection projects through Solarvest and increasing DC-related contracts.

The research house believes the surge in electricity demand is becoming increasingly visible, noting TNB has raised its electricity demand growth guidance to between 4.5% and 5.5% for financial year 2026, due largely to DCs.

According to Kenanga Research, DC load utilisation has more than doubled over the past year, while dozens of projects have already been completed and many more remain under construction.

It also expects the NEWGEN26 programme, which aims to add between 6GW and 8GW of new gas-fired capacity by 2030, to create opportunities for TNB, Malakoff and YTL Power.

Growth story intact

Meanwhile, BIMB Research highlights that the utilities sector’s structural growth story remains firmly intact.

Its top recommendations are TNB and Solarvest, with TP of RM16.77 and RM3.24, respectively.

BIMB Research views TNB as the leading beneficiary of the National Energy Transition Roadmap, supported by resilient earnings, accelerating electricity demand and a sizeable regulated capital expenditure (capex) programme.

The brokerage notes that management has raised electricity demand growth guidance to between 4.5% and 5.5%, while the expanding pipeline of DCs continues to strengthen long-term earnings visibility.

Separately, it says that Solarvest’s record RM2.5bil order book provides earnings visibility through financial years 2027 and 2028.

The management also expects the upcoming Large Scale Solar 6, CRESS and BESS Phase 2 initiatives to unlock billions of ringgit worth of EPCC opportunities.

While CIMB Research has a “neutral” take on the utilities sector, it says TNB’s sizeable regulated capex under the current and next regulatory periods will continue to expand its regulated asset base, supporting earnings growth over time.

It expects contingent capex to accelerate during the second half of 2026 after the utility firm secured approvals for most of its planned projects.

Industry catalysts

CIMB Research maintains its “hold” recommendations on YTL Power, PETRONAS Gas and Malakoff, citing softer near-term earnings outlooks or fair valuations.

Even with its “neutral” stance, CIMB still expects several industry catalysts to support sector activity over the coming months.

These include the opening of tenders for the 2GW LSS6 programme, potential awards under the Feed-In Tariff 2.0 scheme, possible reductions in CRESS system access charges and the announcement of NEWGEN26 winners by late 2026 or early 2027.

With several structural shifts taking place at the same time, investors can expect the utilities sector to remain an active space as new opportunities emerge.