Strong project flows from TNB to boost sector
HLIB Research said the coming quarters could mark a turning point for industry players.
PETALING JAYA: The power infrastructure sector is expected to pick up momentum driven by strong project flows from Tenaga Nasional Bhd (TNB), accelerating data centre (DC) developments and the anticipated rollout of large-scale solar programmes.
Hong Leong Investment Bank (HLIB) Research said the coming quarters could mark a turning point for industry players, following a seasonally softer first quarter of the year.
'We expect a mixed first-quarter earnings season across the power infrastructure space, with quarter-on-quarter variability driven by project execution timing and seasonally lower productivity,' the research house said in a sector update.
'Our checks suggest mechanical and engineering (M&E) contractors lost five to 15 working days due to the Chinese New Year and pre-Hari Raya festivities,' it added.
Despite the short-term disruptions, HLIB Research said the fundamentals of the sector remained intact.
'We see limited impact from global trade tensions on domestically focused players, with sector fundamentals underpinned by a strong project pipeline from TNB, DCs and solar initiatives,' it explained.
While M&E contractors are likely to report softer sequential earnings, cable manufacturers are expected to fare better.
'Cable manufacturers are expected to post stable results, supported by comparatively lower production halts and steady conversion of order backlogs,' it said.
Tender momentum from TNB has remained robust in 2024, supported by the utility giant's sizeable RM42.8bil capital expenditure commitment under Regulatory Period 4.
'The recently awarded TNB 1+1 low-tension cable contract – which we estimate the total value at 67% higher than the 2022-2023 cycle, serves as a leading indicator of a strong project pipeline from TNB for upcoming years,' said HLIB Research.
MN Holdings Bhd , UUE Holdings Bhd and Jati Tinggi Group Bhd had been capturing a large share of the projects, while cable manufacturers like Southern Cable Group Bhd , OSK Holdings Bhd and Master Tech Group Bhd had secured sizeable orders of up to 280% compared with the previous cycle.
Meanwhile, the growing data centre segment continues to offer fertile ground for infrastructure-related works.
'Channel checks indicated no pullback thus far from the 5.9GW electricity supply agreement signed by TNB for DC operators, reinforcing our view that DC-driven power infrastructure momentum remains intact into 2025,' HLIB Research said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New Straits Times
an hour ago
- New Straits Times
Banking sector poised for stronger earnings: HLIB Research
KUALA LUMPUR: The banking sector's earnings momentum is projected to accelerate in the second half of 2025 (2H), following a modest performance in the first quarter. Hong Leong Investment Bank Bhd (HLIB Research) said the first quarter of 2025 earnings season was broadly in line with expectations, with Bank Islam Malaysia Bhd being the only bank under its coverage to miss estimates due to higher credit costs. The remaining seven banks it covers, namely Affin Bank Bhd, Alliance Bank Malaysia Bhd, AMMB Holdings Bhd (AmBank), CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank), Public Bank Bhd and RHB Bank Bhd, delivered results that tracked closely with forecasts. The firm said the sector earnings rose 4.1 per cent year-on-year (YoY), driven by lower loan impairment provisions, but fell 3.4 per cent quarter-on-quarter on a sequential rise in credit charges. "Looking ahead, we forecast sector earnings for financial years 2024 to 2026 (FY24-25) to grow at a two-year compound annual growth rate of 3.4 per cent," it said in a note. HLIB Research anticipates net interest margins of the bank in the second quarter of this year to hold up reasonably well sequentially. It pointed out three key forces at play, including fresh liquidity from the recent statutory reserve requirement cut, easing deposit competition and a sector-wide pivot to more disciplined loan expansion and funding strategies. "This proactive stance is already visible, with banks cutting promotional/campaign fixed deposit rates by five to 15 basis points in May, ahead of a potential Overnight Policy Rate cut, though the full margin benefit may only materialise in 2H 2025. "Beyond margins, the bedrock of asset quality is expected to remain solid, supported by resilient domestic economic conditions and minimal US trade exposure," the firm added. Recognising risks from the secondary impacts of trade uncertainty, HLIB Research said any potential weakness will be well-contained. It noted that the sector is significantly more resilient than in previous downturns, primarily due to the formidable provision buffers accumulated over the past five years. It said the "fortress of provisions" provides a robust defence, capable of absorbing any stress and cushioning the gross impaired loan ratio, which currently stands near historical lows. HLIB Research maintained its "Overweight" stance on the banking sector and views the KLFIN Index's year-to-date 7.0 per cent decline as a tactical opportunity to accumulate ahead of a potential recovery in the latter part of the year. The firm's top picks include CIMB with a target price of RM8.80 a share, as well as AmBank (TP: RM6.20) and RHB (TP: RM7.70).
Malaysian Reserve
3 hours ago
- Malaysian Reserve
Corporate earnings: Tepid 1Q results prompt target downgrades
Higher proportion of companies miss expectations amid persistent macroeconomic headwinds and policy uncertainty by RUPINDER SINGH MALAYSIA'S corporate earnings season for the March 2025 quarter (1Q25) ended with more disappointments than positive surprises, prompting research houses to revise their earnings forecasts and lower year-end targets for the FTSE Bursa Malaysia KLCI (FBM KLCI). Both Hong Leong Investment Bank Bhd (HLIB Research) and RHB Investment Bank Bhd (RHB Research) characterised the season as broadly underwhelming, with a higher proportion of companies missing expectations amid persistent macroeconomic headwinds and policy uncertainty, especially in the US. More Misses Than Beats In HLIB Research's coverage universe of 112 stocks, only 14% beat expectations, while 33% fell short and 53% came in line. 'On a sequential basis, the above-to-below ratio fell to 0.43 times from 0.73 times (consensus: 0.38 times from 0.57 times),' it said in a results round-up titled 'More Fizzle Than Sizzle'. Similarly, RHB Research noted that '34% of the companies we cover chalked numbers that missed expectations, while 14% beat', compared to the previous quarter where 31% missed and 28% beat. The firm described the outcome as 'broadly in line with our expectations, in view of the prevailing macroeconomic vulnerability exacerbated by the (US President Donald) Trump administration's mercurial trade initiatives'. The sectors that delivered positive surprises were construction and healthcare (RHB Research), and construction and gloves (HLIB Research). On the other hand, earnings disappointments were concentrated in the automotive, oil and gas (O&G), gaming, technology and property sectors. Notably, HLIB Research said earnings growth for its cover- age universe rose 3% quarter-on- quarter (QoQ), but declined 2% year-on-year (YoY), 'dragged chiefly by the gaming sector, IOI Proper- ties Group Bhd, Petronas Chemi- cals Group Bhd, Sime Darby Bhd and YTL Power International Bhd.' Target Cuts, Earnings Revisions Both research houses trimmed their FBM KLCI targets following weaker-than-expected earnings. HLIB Research slashed its end-2025 FBM KLCI target to 1,640 from 1,690, based on an unchanged 14.5 times price-to-earnings (PE) ratio, reflecting 'our reduction in core profit'. The firm now projects 2025/2026 FBM KLCI core earnings growth of +3.1%/+6.6%, compared to its earlier forecast of +6.1%/+5.8%. Meanwhile, RHB Research lowered its target to 1,600 points from 1,650, citing a 3.5% downgrade to forward earnings estimates since early 2Q25. 'We have also trimmed financial year 2025 (FY25) and FY26 earnings estimates for RHB Research's coverage universe by 2% and 1.6%,' it said. The FBM KLCI large-cap constituents saw modest negative adjustments, with the banking and O&G sectors contributing most to the downgrades. 'Negative adjustments in the bank and O&G sectors made up most of the cuts, exacerbated by lower earnings for IOI Corp Bhd and Sime Darby,' RHB said. Banks' guidance remained stable, though RHB Research flagged risks of 'lower loan growth and smaller margins from one Overnight Policy Rate (OPR) cut'. Tactical Opportunities Amid Uncertainty Despite the cautious tone, both research houses see tactical opportunities amid recent market pullbacks. HLIB Research believes its 'sell on strength' strategy has worked well, with the FBM KLCI down about 5% from its recent peak. 'We foresee investor clarity and confidence being restored in 4Q25, paving way for more sustained KLCI re-rating towards year-end,' it said. The firm recommends a 'buy on weakness' strategy focused on high-beta, domestic-centric names that have declined more than 10% year-to-date (YTD) or offer dividend yields above 4%. Among its top picks are CIMB Group Holdings Bhd, Sunway Bhd, Gamuda Bhd, 99 Speed Mart Retail Holdings Bhd, AMMB Holdings Bhd, IOI Properties, Dialog Group Bhd, Deleum Bhd and SMRT Holdings Bhd. RHB Research also advocates a similar strategy but with a defensive tilt. 'We still advocate a buy-on-weakness strategy centred around defensive, domestic-centric names,' it said. It cautions that 'near-term upside for equities will likely be capped by risks of further negative earnings revisions' and warns of lingering uncertainties due to 'the Trump administration's track record for unpredictability and frequent policy reversals'. Outlook Hinges on External Risks Both houses flagged external risks that could weigh on sentiment going forward, especially from US fiscal and trade policies. HLIB Research warned: 'We believe markets are not pricing in adequate US tariff and fiscal risks… it could manifest with a lag and potentially weigh on FBM KLCI performance in 3Q25.' RHB Research echoed similar concerns, highlighting second- and third-order effects from global trade deterioration and US fiscal strains. 'Potential US rate cuts, rising US debt levels, large US treasury bills issuances…raise the risk of a weaker US dollar, higher long-term bond yields, and potential mark-to-market losses for owners of long-dated papers.' While domestic liquidity remains ample, both firms agree that investor confidence may take time to recover. As such, stock-picking and timing will be key in navigating the remainder of the year. This article first appeared in The Malaysian Reserve weekly print edition
The Star
5 hours ago
- The Star
Pent-up demand to lift KPJ's earnings in 2H
PETALING JAYA: KPJ Healthcare Bhd is expected to post stronger earnings momentum in the second half of this year (2H25) on the back of pent-up demand, the ramp up of its newer hospitals and growing case complexity, analysts say. Four of KPJ's expanded hospitals are already in the black in terms of earnings before interest tax depreciation and amortisation (Ebitda), said Maybank Investment Bank Research (Maybank IB). Maybank IB is positive on KPJ's revenue and earnings potential near to mid-term as the roll-out of diagnosis-related group costing method takes a backseat for now. During a recent analyst briefing, KPJ's management also reaffirmed that the healthcare group remains on all major insurance panels. It alleviated concerns over volume attrition amid the government's 10% cap on medical insurance premium hikes, said the research house. It added that it also continues to see potential upside from medical tourism. Maybank IB maintained KPJ's Ebitda margin forecast of 24% for this year to 2027 and three-year earnings compound annual growth rate of 17%. The research house said its target price of RM3.24 and 'buy' call on the stock implies an enterprise value to Ebitda of 13 times for next year. Maybank IB said it believes the recent sell-off in KPJ was overdone, and could provide a good buying level for KPJ, which was backed by healthy fundamentals, expectations of stronger earnings in 2H25, and positive sector outlook. It also indicated that some near-term weakness could persist. This is as KPJ's recent rebound has been relatively mild. A stronger buy signal would be triggered if the price breaks above the previous support-turned-resistance level at RM2.82 a share, Maybank IB said. Despite a bigger overlap of festivities and holidays for Chinese New Year and Ramadan, the first-quarter results for this year came broadly in line with revenue, Ebitda, net profit growth forecasts of 7%,7% and 12% year-on-year. Largely driven by improved case-mix and a healthy bed occupancy rate of 63%, this indicates continued structural strength and reinforces 1Q25 seasonal drag's transitory nature.
