• Tenaga’s 4Q23 normalised net profit missed expectations on significantly higher opex during the quarter.

• The company added ~276MW of renewal energy (RE) capacity in Ireland in 4Q23, effectively increasing its portfolio mix to 20% RE.

• Reiterate Add with an unchanged DCF-based TP of RM12.00.

4Q23 results review

• Tenaga’s 4Q23 normalised net profit fell 48% qoq on the back of significantly higher non-fuel related operating costs (+18% qoq) which we suspect was exacerbated by the forced outage at its Manjung 4 plant since early-Dec 2023 due to issues with its steam turbine, which more than offset benefits from the positive fuel margin recognised during the quarter.

• On a yoy basis, normalised net profit declined 14% in 4Q23 and 19% in 2023, mainly due to higher fuel costs despite lower spot prices (due to negative fuel margins recognised given the time lag in realising the benefits of lower coal and gas prices; 2023 negative fuel margin amounted to RM619m vs. a positive fuel margin of RM1.1bn enjoyed in 2022). Overall, 2023 normalised net profit missed expectations, making up 84% of our and 88% of Bloomberg consensus forecasts.

• Despite the weaker performance in 2023, the company declared a final DPS of 28sen in 4Q23, taking full-year DPS to 46sen, matching the payment in 2022.

Other observations from the quarter

• The GenCo reported a loss after tax of RM527m in 2023 vs. a PAT of RM861m in 2022. If we normalise the earnings for the distortions caused by fuel margins, we estimate GenCo made a PAT of ~RM92m in 2023 vs. a loss after tax of ~RM247m in 2022.

• Receivables continued to trend lower for four consecutive quarters to RM10.4bn in 4Q23 (-22% qoq; -54% yoy) from RM13.4bn in 3Q23 and RM22.8bn in 4Q22.

• Electricity demand grew 7.1% yoy in 4Q23, driven mainly by strong growth from the commercial (+10.1%) and residential (+11.3%) segments while growth from industrial users was modest (+1.5%).

• Generation mix during the quarter was skewed towards coal (56%), followed by gas (38%), with the balance comprising primarily hydropower.

• The company added ~276MW of solar capacity in Ireland to its portfolio in 4Q23 following the completion of the acquisition of Gillinstown and Rosspile (two operational facilities) on 20 Dec 2023, effectively taking its RE mix to 20% (from 17% in 4Q22).

Reiterate Add

We continue to see TNB as a key beneficiary of the country’s National Energy Transition Roadmap (NETR), which aims to position Malaysia as a leader in the energy transition agenda in the region. Valuations are attractive for a liquid large-cap index stock, currently at a 2024F EV/EBITDA of 5.4x vs its pre-Covid mean of 6.5x, whilst offering decent yields of ~4%. Key re-rating catalysts: further details on Tenaga’s involvement in Malaysia’s RE ambitions creating a new growth angle for the stock. Downside risks: A resurgence in fuel prices and unfavourable changes to the Incentive Based Regulation (IBR) framework and Imbalance Cost Pass-Through (ICPT) mechanism.

Source: CGS-CIMB Research - 28 Feb 2024