Maybank IB Research maintains Neutral on Utilities sector

by **Cals** Thu 02 Oct 2014, 02:25

Business & Markets 2014

Written by theedgemalaysia.com

Wednesday, 01 October 2014 11:33

KUALA LUMPUR (Oct 1): Maybank IB Research has maintained its Neutral rating on the Utilities sector and said peninsular Malaysia’s reserve margin would drop below 20% in 2014-2020 (from 30% in 2013).
In a note Wednesday, the research house said the reserve margin could fall further to 10% if some of the new plants are indeed delayed; extending expiring SLAs/PPAs appears the most convenient fix.
“New capacity will be required beyond 2020; IPPs would benefit if PPA terms become less onerous,” it said.
Maybank IB Research said that based on the Energy Commission’s indicative timeline and assuming 4% peak demand CAGR in 2014-2020, Peninsular Malaysia’s reserve margin would trend between 14%-21% (from 30% in 2013) by our estimates.
The research house said that a 3% peak demand CAGR in the same period would result in reserve margins trending between 19%-27%.
It said assuming a 12 months delay to Tanjung Bin and Jimah (3B), and a 24-months delay to Pasir Gudang (4A), reserve margin could trend as low as 10% in 2019.
“We think a short extension of expiring SLAs/PPAs appears the most convenient fix to alleviate such a situation.
“We caveat this is purely a hypothetical stress-test, since there have not been any official confirmations of delays. New generation capacity will still be required beyond 2020 in our view,” it said.
Maybank IB said IPPs including YTL Power (Hold, TP: RM1.65), generally benefit more from new capacity relative to Tenaga (Buy, TP: RM14.00).
“However, we note PPA terms have become increasingly onerous in recent years.,” it said.