KUALA LUMPUR (Jan 30): CGSCIMB has identified Tenaga Nasional Bhd as a main beneficiary of the National Energy Transition Roadmap (NETR) on the back of the normalisation of its receivables, which can increase its free cash flow (FCF), providing room for more profitable investments and dividends.
Similarly, CGSCIMB expressed a positive assessment of Malakoff Corporation Bhd, adding that investors may have overlooked Malakoff’s robust FCF generation.
"At current levels, we think investors are overlooking the group’s strong FCF generation once its earnings normalise on the back of more stable coal prices and upside potential from Renewable Energy (RE) projects to achieve its RE capacity targets," it said in a note on Tuesday.
Notably Tenaga's net operating cash flow stood at RM22.31 billion as at Sept. 30, 2023, while its receivables stood at RM13.42 billion. Malakoff's net operating cash flow was at RM1.02 billion as at Sept 30, 2023.
While specifics of the large-scale solar (LSS5) scheme remain undisclosed — including project capacity size, shareholding structures such as foreign shareholding limits, and bid tenures — CGSCIMB sees the announcement as an encouraging sign of the government's commitment to the targets set under the NETR.
The firm predicts contract awards will take place by the end of 2024, based on the timeline for past LSS programmes. They also note that Tenaga’s critical role in supporting NETR is evident in the need to reinforce the national power grid infrastructure.
Additionally, the firm estimates that the new quotas for these assets will necessitate engineering, procurement, construction, and commissioning (EPCC) work costing between RM7 billion and RM10 billion.
It noted that companies like Solarvest, Samaiden, Sunview, and Pekat could benefit from this in the form of new contract flows.
CGS CIMB maintains an 'overweight' stance on the Malaysian utilities sector, citing the NETR as a factor that has injected structural growth into a traditionally defensive sector. They warn, however, that sector downside risks include derailment of the NETR.
Furthermore, the government announced plans to roll out quotas for 2.8GW of new RE capacities, consisting of three categories.
Category one includes a request for proposal (RFP) for 2GW of solar capacity (including 500MW of floating solar) via Malaysia’s fifth LSS5 scheme.
Category two is the Low Carbon Energy Generation Programme with a 400MW quota for low-carbon power generation, such as small hydro, biogas, biomass and hydrogen under the New Enhanced Dispatched Arrangement (NEDA) mechanism.
The third category includes a 400MW quota under the net energy metering (NEM) scheme for households and the commercial and industrial (C&I) segment.
Lastly, the government launched Malaysia’s first utility-scale battery storage project, a 400MWh battery energy storage system (BESS) pilot project, to be undertaken by Tenaga.