Water is life

Asia's growth water utility stock in Penang: The Silicon Valley of the East

The water utility business is highly defensive, and PBA Holdings Bhd (5041.MY) stands as the undisputed monopoly in Penang, with zero competition. Its valuation is attractive, and the company is on track to achieve at least RM150 million net profit in 2025. At just a 10x forward P/E, the stock could soar to RM4.53, and at a more favorable 15x P/E, it reaches a compelling fair value of RM6.80.

Penang boasts the second-lowest domestic water tariff in the country, giving PBA immense upside potential for future tariff hikes. With new government regulations allowing water operators to increase tariffs every three years, PBA is primed to capitalize on this.

PBA is set to experience robust earnings growth, projected at an impressive 20% CAGR through 2030, fueled by ever-increasing water demand and expected tariff hikes in both 2026 (non-domestic consumers) and 2027 (domestic). Each tariff increase will flow straight from revenue to the bottom line, magnifying profit growth and shareholder returns.

Warren Buffett and Charlie Munger have always sought to invest in companies with monopoly-like status.

PBA's long-standing issue of low water tariffs has now been resolved, allowing for potential tariff increases every three years.

Three decades of pent-up earnings are now being unleashed, paving the way for superior earnings growth going forward.