KUALA LUMPUR (Jan 14): Malaysian utilities are expected to see a modest earnings recovery in 2026 after a difficult 2025, according to Maybank Investment Bank (Maybank IB).

Major operational and regulatory overhangs are easing although upside remains capped by regulatory constraints and already-stretched valuations, the research house said in a note.

The house projects sector net profit to rise 4% year-on-year in 2026 after falling an estimated 13% in 2025, which was hit by Tenaga Nasional Bhd’s (KL:TENAGA) tax dispute, outages at Malakoff Corp Bhd’s (KL:MALAKOF) Tanjung Bin Energy (TBE) plant and tapering earnings at YTL Power International Bhd’s (KL:YTLPOWR) PowerSeraya operations.

The house said utilities are entering 2026 “on a clean slate” with no major negative catalysts in sight after Tenaga fully prepaid its disputed tax amount while Malakoff expects its Tanjung Bin Energy plant to resume operations in early 2026, potentially alongside insurance claims.

Earnings growth in 2026 is expected to be driven by Tenaga’s contingent capex deployment, Malakoff’s Tanjung Bin recovery and Ranhill Utilities Bhd’s (KL:RANHILL) full-year benefit from Johor’s 2025 water tariff hike.

Despite rising electricity demand, particularly from data centres, Maybank IB cautioned that regulatory frameworks limit earnings upside as the power sector is largely insulated from demand risk while water operators’ margins remain capped.

In the gas segment, 2026 marks the start of a new three-year regulatory cycle, with unexpected base tariff hikes for the pipeline divisions of PETRONAS Gas Bhd (KL:PETGAS) and Gas Malaysia Bhd (KL:GASMSIA).

Meanwhile, domestic gas prices are expected to trend lower year-on-year in 2026, which could pressure Gas Malaysia’s retail margins.

Given that sector valuations are already around or above their five-year averages, Maybank IB "does not expect significant share price appreciation for most stocks in 2026 arising from further expansion of multiples".

The house maintained its 'neutral' stance on the sector and named Tenaga as its preferred pick with a target price of RM14.50 while maintaining its 'buy' call on Mega First Corporation Bhd (KL:MFCB), with a target price of RM5.20 a share.