The global shift towards energy security and supply-chain resilience is expected to drive a multi-year capital expenditure (capex) upcycle in the energy sector, creating opportunities across utilities, power infrastructure and energy service providers, according to Kenanga Research.
Following insights gathered from major energy events including ETCON 26 and Ecosperity Week, Kenanga said geopolitical uncertainties, including the recent US-Iran conflict, have accelerated a global rethink of energy strategies.
Countries are increasingly prioritising domestic energy resilience and reducing reliance on fragile global supply chains, shifting the focus of the energy trilemma towards energy security over affordability and sustainability, although within economically sustainable limits.
Kenanga noted that ASEAN is poised to become a major driver of global energy demand growth. Based on projections by the Institute of Energy Economics Japan (IEEJ), ASEAN and India could contribute around 80% of global energy demand growth if current trends continue, supporting sustained activity across the regional energy sector.
Malaysia’s Power Grid Faces Transformation Amid Data Centre Boom
One of the key themes emerging from the sector discussions was the rising importance of electricity grids as countries prepare for increasing power demand.
Kenanga highlighted that the rapid expansion of large-scale data centres is reshaping traditional utility planning, given their concentrated power consumption, less predictable demand patterns and requirement for near-continuous reliability.
Malaysia’s electricity grid will require significant upgrades, including greater digitalisation and the eventual adoption of artificial intelligence (AI) in grid operations, particularly as distributed solar generation increases.
The research house views grid expansion and modernisation as a long-term structural trend for Malaysia’s power sector.
The upcoming transmission and distribution (T&D) investment cycle, particularly under Tenaga Nasional Bhd’s (TNB) Regulatory Period 4 (RP4), is expected to be the next major phase of energy spending as the country prepares for additional generation capacity and data centre-related demand.
TENAGA, MEP Players Seen as Key Beneficiaries
Kenanga said power generators such as TNB and Malakoff Corp Bhd have already benefited from rising electricity demand, with their share prices increasing by 30% to 50% since 2022, driven partly by the acceleration of artificial intelligence-related infrastructure growth.
However, the next major opportunity is expected to shift towards grid infrastructure.
“As T&D investment accelerates, TNB is positioned as the key beneficiary due to its monopoly position in Malaysia’s transmission and distribution network,” Kenanga said.
The research house expects TNB’s earnings base to expand alongside higher electricity demand and increased grid investment.
For higher-beta exposure to TNB’s capex cycle, Kenanga favours mechanical, electrical and plumbing (MEP) contractors, naming KEEMING and SCGBHD as potential beneficiaries.
Oil & Gas Services to Benefit From Upstream Spending
Within the oil and gas sector, Kenanga maintained a positive view on service providers, particularly Dayang Enterprise Holdings Bhd, which it described as a “picks and shovel” play on a potential recovery in upstream spending.
The expected increase in energy-related capex is expected to support service providers involved in maintenance, engineering and project execution.
Solar Growth Continues, But Margins Remain Challenged
While renewable energy remains a key pillar of long-term energy transition strategies, Kenanga said the near-term outlook for solar contractors remains mixed.
Solar demand is expected to remain structurally strong due to solar power being one of the most scalable renewable energy sources. However, elevated solar panel prices and depressed power purchase agreement (PPA) tariffs could pressure engineering, procurement, construction and commissioning (EPCC) margins, particularly for upcoming large-scale solar (LSS6) projects.
Kenanga said it continues to favour MEP players over solar contractors, citing stronger demand for contractors capable of supporting Malaysia’s power transmission expansion.
Kenanga highlighted KEEMING as a potential beneficiary of Malaysia’s power infrastructure expansion, supported by its exposure to both solar-related projects and TNB-linked opportunities.
The company benefits from its relationship with SLVEST through a 24% associate stake, providing exposure to solar interconnection facility works.
KEEMING is also pursuing TNB-related opportunities through joint ventures with existing panel contractors and has submitted five high-voltage (HV) tenders worth an average RM40 million to RM50 million each.
The research house believes the company is well positioned to capture the upcoming MEP and grid infrastructure spending cycle.
Nuclear Power Potential, But Still a Long-Term Option
Nuclear energy has also emerged as a possible future capacity solution for Malaysia, with South Korea highlighted as a potential reference point.
However, Kenanga noted that Malaysia’s nuclear journey remains at an early stage, and commercial implementation could take at least a decade.
While TNB could potentially participate through generation ownership and grid connectivity, greater clarity on regulation, financing structure and tariff mechanisms would be required before determining whether nuclear investments would create economic value.
Energy Security to Shape Sector Outlook
Overall, Kenanga believes the energy sector is entering a structural growth phase driven by energy security priorities, rising electricity demand and infrastructure investment.
The firm expects beneficiaries to emerge across upstream oil and gas services, power generation, transmission and distribution, as well as MEP contractors supporting Malaysia’s energy infrastructure build-out.
The shift towards energy resilience, combined with the rise of data centres and regional demand growth, is expected to create a multi-year investment cycle for the sector.
