Investment Highlights

• We maintain HOLD on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM14.55/share (WACC: 7%, terminal growth rate: 2%), which implies a FY25F PE of 20.6x. We ascribe a neutral 3-star ESG rating to TNB.

• TNB’s normalised net profit of RM2.3bil in 1HFY24 (excluding impairments and forex but inclusive of MFRS 16) was within our forecast and consensus. We expect TNB’s net profit to soften in 2HFY24 as most of its general expenses are incurred and recognised in 4Q.

• TNB’s normalised net profit climbed by 39% YoY to RM2.3bil in 1HFY24 on the back of a decline in fuel margin losses. Fuel margin losses narrowed to RM69.8mil in 1HFY24 from RM565.7mil in 1HFY23.

• Underpinned by smaller fuel margin losses, GenCo swung into a net profit of RM319mil in 1HFY24 from a net loss of RM193.8mil in 1HFY23. Comparing 2QFY24 against 1QFY24, GenCo recorded net profit of RM399.4mil vs. a net loss of RM80.4mil.

• Sales volume of electricity in Peninsular Malaysia grew by 7.9% YoY in 1HFY24, underpinned by the residential sector. Electricity demand from the residential sector rose by 11.9% YoY in 1HFY24 while the commercial sector used 10% more electricity. Electricity demand from the industrial sector inched up by 2.8% YoY in 1HFY24.

• TNB’s ICPT (Imbalance Cost Pass Through) surcharge declined to RM5.2bil in 1HFY24 from RM6.5bil in 1HFY23 due to lower coal and gas costs.

• Receivables rose to RM12.1bil as at end-June 2024 from RM11.3bil as at end-March 2024. We believe that receivables would fall going forward as TNB has received payments of RM0.7bil from the government for the ICPT subsidies.

• TNB is currently trading at FY25F PE of 19.7x, which is higher than its 2-year average of 16x. We attribute the premium to TNB’s transition to clean energy from coal.

Source: AmInvest Research - 30 Aug 2024