Date of Report
24 October 2024
Broker
UOB Kay Hian
Company Overview
Tenaga Nasional Berhad (TNB) is a leading utility company in Malaysia, primarily engaged in supplying natural gas to industries in Peninsular Malaysia. The company aims to modernize its hydro assets and expand its renewable energy portfolio to contribute to a sustainable future.
Stock Data
- Share Price: RM14.42
- Target Price: RM13.20
- Market Capitalization: RM83,822.7 million
- Market Cap (USD): $19,245.3 million
- Shares Issued: 5,812.9 million
- Average Daily Turnover (3 months): $36.3 million
- 52-week High/Low: RM15.24 / RM9.77
Major Shareholders
- Amanah Saham Nasional: 21.6%
- Khazanah Nasional: 20.9%
- EPF (Employees Provident Fund): 17.1%
Recent Developments
Hydro Asset Visits
TNB recently conducted a visit to the Chenderoh hydro plant to understand its rejuvenation plans, focusing on modernizing 650MW of existing hydro plants between 2026-2033. Plans include the installation of up to 400MW of floating solar PVs on the dams, contributing to Malaysia’s goal of achieving net-zero carbon emissions by 2050 with a 70% green energy mix.
Plant Rehabilitation and Modernization
- Rejuvenation Plans: The Sg Perak hydro power plant, particularly the Chenderoh plant (40MW), is slated for rejuvenation starting in 2026, with an initial capacity increase of 8MW.
- Capacity Details: TNB plans to repower 650MW of hydro plant capacity, enhancing plant efficiency by approximately 10%.
- New Power Purchase Agreements (PPAs): The Energy Commission has approved a healthy tariff for rehabilitation projects, expected to have a tenure of up to 40 years.
National Energy Transition (NeTR)
TNB Genco is tasked with spearheading a flagship project under the National Energy Transition (NeTR) initiative, which involves a 2.5GW hybrid hydro floating solar project in TNB’s hydro reservoirs over 2026-2040. The project will commence with a 70MW floating solar plant in Chenderoh by 2026.
Financial Performance
- Expected Normalized Net Profit for 3Q24: Between RM1.1 billion to RM1.3 billion, following a strong 2Q24 performance of RM1.3 billion.
- Key Drivers: Improved performance from TNB Genco without negative fuel margins and stable regulated returns for Regulatory Period 3 (RP3).
Regulatory Framework
Regulatory Period 4 (RP4) Submission
TNB is in the final submission phase for RP4, covering 2025-2027. Key expectations from the submission include:
- Weighted Average Cost of Capital (WACC): Estimated at 7.0-7.3%
- Higher Capex: Increased capital expenditure to accommodate rising electricity demand.
Valuation and Recommendation
- Recommendation: Maintain HOLD with a DCF-based target price of RM13.20.
- Capex Projections: TNB is anticipated to invest RM35 billion in regulatory capex to support renewable energy intermittency and stabilize electricity supply.
- Trading Metrics: At the target price, TNB is expected to trade at a PE of 17x for 2025F, indicating significant valuation growth potential.
Environmental, Social, Governance (ESG) Initiatives
- Renewable Energy Goals: TNB aims for 8,300MW in renewable energy generation capacity by 2025.
- Emission Reduction Pledges: New commitments to reduce emission intensity by 2035 and achieve zero net emissions by 2050.
