Power outlook brighter
New Straits Times, January 12, 2004

THE power industry is poised for better growth over the next few years as electricity demand in 2003 and 2004 is expected to increase 8.4 per cent and 9.2 per cent re­spectively on the back of higher gross domestic product (GDP) growth.

GDP has been forecast to grow 4.8 per cent and 5.8 per cent in 2003 and 2004 respec­tively.

Avenue Securities Sdn Bhd said in a report that while the shift to a more service orientated economy may see marginal slow­down in energy growth, the increasing af­fluence and urbanisation of the country will help fill the void.

"From the better outlook for energy con­sumption, we expect the reserve margin to erode to its mandated level of 30 to 35 per cent in the next two years," it said.

The research house forecasts reserve margin to reach 44.3 per cent, 37.7 per cent and 27.5 per cent in 2004, 2005 and 2006 respectively.

Tenaga Nasional Bhd is expected to be the main beneficiary of improving energy demand given its monopoly in distribution and trans­mission.

"New generation power purchase agree­ments (PPAs) should also mitigate the burden on the utility giant. We are again seeing value in Tenaga's future. However, large exposure to foreign debts may impact operation profits," Avenue Securities said.

It said the performance of Malakoff Bhd and YTL Power International Bhd will be tied to their long-term PPAs in the absence of im­mediate new generation capacity coming on ­stream.

"However, by 2006 and 2007, Malakoffs Tanjung Bin is expected to be fully com­missioned to give it an additional boost for growth."

Avenue Securities said both Malakoff and YTL Power provide attractive dividend yields which are above current fixed deposit rates.

The research note also said the push to use cheaper sources of fuel may improve margins for industry players.

"The recent disruption of gas supply to the industry seems to have intensified the urgency to utilise coal as a cheaper source of fuel, hence the push to speed up Tenaga's Janamanjung."

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