Investment Highlights

• We maintain BUY on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM13.00/share (WACC: 7%, terminal growth rate: 2%). We ascribe a neutral 3-star ESG rating to TNB.

• Here are the key takeaways from TNB’s analyst briefing last week: -
  
  ➢ TNB is currently assessing the impact of the forced outage at the 1,000MW Manjung Power Plant in December 2023. We understand that the power plant may only start commissioning again in 4QFY24. The turbine has been sent to Germany for repairs. The loss of capacity payments is estimated to be between RM400mil and RM500mil. We believe that our previous downward revision in TNB’s FY24F net profit of 10% is sufficient to account for this.
  
  ➢ TNB has submitted its proposals for RP4 (Regulatory Period). Some of the proposals relate to renewable energy zones, rooftop solar, flexible storage solutions and data centres. The parameters for RP4 are expected to be announced at the end of FY24F. Under RP3, TNB’s rate of return is 7.3%. RP4 will cover the regulatory periods of 2025F to 2027F.
  
  ➢ TNB is expected to complete 9 data centre projects with potential energy demand of 2,300MW in FY24F. Some of the customers are GDS IDC Malaysia, PDG and SIPP Power. In FY23, TNB completed 9 data centre projects with energy demand of 635MW.
  
  ➢ Data centres are anticipated to support electricity demand growth of 2.5% to 3% in FY24F (ex-RP3 cap of 1.7%). Data centres are classified under the commercial sector, which accounted for 35% of electricity demand in Peninsular Malaysia in FY23. By FY35F, energy demand from data centres is envisaged to exceed 5,000MW. Electricity demand from the commercial sector rose by 7.6% in FY23.

• TNB is currently trading at a FY24F PE of 17x, which is below its 2-year peak of 20x. Dividend yield is also decent at 4.2% for FY24F.

Source: AmInvest Research - 4 Mar 2024