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CIMB Research remains Overweight on Malaysia power sector [17-01-2013]  
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CIMB Equities Research remains Overweight on Malaysian power as it offers exposure to secure cash flow payments and the government's electricity reform agenda.

“Our top pick remains Gas Malaysia as it is the least susceptible to gas supply shocks and is a direct beneficiary of LNG imports from 2Q13 onwards,” it said on Thursday.

CIMB Research expects gas use in the power sector to fall in favour of coal. This is due to lower domestic gas production and higher LNG import costs.

Malaysian power has come a long way since the birth of the independent power producers (IPPs) in the 1990s. Now, 20 years on, it is bigger, better and ready to scale new heights.

The research house said Malaysia's electricity generation capacity is now dominated by natural gas (60%) with coal (30%) and hydro (10%) playing a less prominent role.

“Over the next few years we expect about 80% of incremental plant ups to be coal due to dwindling indigenous gas production, lower energy subsidies and LNG imports. As a result gas-fired electricity will cost more and the system will favour coal as this fuel is not subsidised.

“Based on the current plant schedule, natural gas use could fall by 31% between 2013 and 2020 to 778 mmscfd,” it said.

In contrast, by 2020 CIMB Research expects coal-fired electricity to make up 42% of total generation capacity vs. 33% now. This could result in the power sector consuming 73% more coal by 2020 or 36.9 million tonnes.

“Winners from this trend would be Tenaga, Malakoff and MMC. Losers are Pet Gas and the first generation IPPs,” said the research house.

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