KUALA LUMPUR (Dec 24): Malaysia’s utilities stocks still have room to run as electricity demand surges from the proliferation of data centres and electric vehicles, Apex Securities said and told investors to "overweight" the sector.

Data centres alone would require more than 5GW by 2035, Apex Securities said in a sector initiation note. As data centres operate even through the night, the demand would account for over one-third of the total demand and exceed the entire commercial sector in 2023, it noted.

“The surge in data centre growth has reinvigorated electricity demand,” Apex Securities said. For strategy, the house has Malakoff Corp Bhd (KL:MALAKOF) and Tenaga Nasional Bhd (KL:TENAGA) as its top picks for the sector.

Shares of Tenaga, which has a near-monopoly on the country’s electricity distribution, and other utilities have rallied this year on the back of strong economic growth that boosted demand for power.

News reports of new power-hungry data centres mushrooming in Malaysia have also boosted investor sentiment and most analysts are also bullish on Tenaga and Malakoff.

Meanwhile, a slew of policies including import duty exemptions and income tax reliefs as well as the expansion of charging infrastructure have also lifted sales of electric (EV) and hybrid vehicles.

“As adoption continues to gain momentum, EVs are expected to play an increasingly critical role in shaping future electricity demand,” Apex said.

Replacing just 5% of the petrol consumption with EVs would result in more than 6,800GWh of demand, equivalent to 5.5% of the total annual electricity demand in 2023, according to the research house’s estimates.

“These estimates underscore the significant impact that EV adoption could have on Malaysia's electricity demand,” Apex said. “As the nation progresses toward its EV adoption targets, it is crucial to prepare the electricity grid for this additional load.”

“The sector is set for robust growth, driven by rising electricity demand from data centres, the electrification of vehicles, and the ongoing energy transition,” the house said.

The entire electricity supply chain would benefit from the demand, such as cables and wire suppliers like Southern Cable Group Bhd (KL:SCGBHD) and underground utilities engineering firm UUE Holdings Bhd (KL:UUE), Apex noted.

Solar panel installers such as Solarvest Holdings Bhd (KL:SLVEST), Samaiden Group Bhd (KL:SAMAIDEN) and Pekat Group Bhd (KL:PEKAT) are also well-positioned to capture opportunities from the growing adoption of solar energy, it added.