MIDF Investment Bank (MIDF) released its Utilities Sector Update today (July 1), maintaining a NEUTRAL stance as it reports no surprises in the latest Imbalance Cost Pass-Through (ICPT) revision for the second half of 2024.

The Malaysian government has opted to keep rebates and surcharges unchanged for domestic consumers, while non-domestic consumers and street lighting under local authorities will experience a slight reduction in surcharges by 1 sen per kilowatt-hour (kwh). Businesses using low and high voltage will also benefit from reduced effective tariffs of -2.3% and -1.8%, respectively.

MIDF's analysis reveals that the ICPT revision aligns with the government's targeted subsidy approach, with subsidies amounting to RM2.19 billion, a 15.3% increase from the previous estimation for the first half of 2024. Prime Minister YAB Datuk Seri Anwar Ibrahim highlighted that these adjustments aim to support efforts to lower the prices of goods amidst current economic conditions.

The revision maintains the current -2 sen/kwh rebate for domestic consumers using up to 600 kwh/month, while those exceeding 1,500 kwh/month will continue to face a 10 sen/kwh surcharge. Medium and high voltage non-domestic consumers will see their surcharges reduced to 16 sen/kwh, marking a 1.8% decrease in effective tariffs. Similarly, low voltage non-domestic consumers and sectors like agriculture, water, and sewerage will benefit from a 1 sen reduction in surcharge to 2.7 sen/kwh.

Businesses using low voltage connections (<11kv) will experience a -2.3% reduction in effective tariffs to 42.65 sen/kwh, whereas those using medium to high voltage (>11kv) will see their effective tariffs reduced by -1.8% to 55.95 sen/kwh.

In terms of sector focus, MIDF highlights Samaiden Group Berhad (BUY, TP: RM1.57) and Sunview Group Berhad (BUY, TP: RM0.88) as key beneficiaries poised to benefit from increased demand in Renewable Energy (RE) Engineering, Procurement, Construction, and Commissioning (EPCC) projects. Samaiden boasts a solid order book of RM354 million, while Sunview has secured substantial projects overseas in Uzbekistan and Bulgaria.

MIDF remains cautious with a NEUTRAL outlook on Tenaga Nasional Berhad, despite improvements in its receivables position and cash flow prospects stemming from reduced ICPT under-recovery. The firm believes stretched valuations in the sector warrant prudence, yet sees potential in the RE EPCC sub-sector due to upcoming CGPP and LSS5 projects.

The Government's relaxation of conditions for the Net Energy Metering (NEM) and self-consumption (SELCO) for solar PV programs is expected to stimulate further adoption among consumers, potentially reducing electricity costs and enhancing solar penetration.

While MIDF maintains a NEUTRAL stance on the utilities sector overall, investors may find opportunities in stocks like Samaiden and Sunview, positioned to benefit from ongoing RE initiatives and international project expansions.