Tenaga Nasional Berhad’s (TNB) wholly-owned United Kingdom-based Vantage RE Ltd (Vantage RE) is its key to renewable energy (RE) expansion plan, and the unit is expected to meet one-third of the group’s target RE asset portfolio of 8.3GW by 2025.
“Vantage RE is open to both greenfield and brownfield expansions focusing on offshore wind and battery energy storage,” said Kenanga Research in its Company Update note today (Nov 3).
The research house maintains its OUTPERFORM rating and its foreecasts, with DCF-derived TP of RM11.90 (WACC: 6.7%; TG: 2%) and no adjustment to its TP based on ESG 3-star rating. It added, TNB’s dividend yield is decent at c.4%.
It highlighted takeaways from its virtual engagement session with Vantage RE recently, saying TNB started investing in the UK in 2017 and Vantage RE was set up in 2021 as a growth vehicle to drive sustainable growth in the UK and Europe’s RE markets.
“Its current asset portfolio consists of solar farms, onshore and offshore wind farms, all in the UK. It currently has 855MW of operating assets comprising those under construction and secured development rights of certain projects.
“Vantage RE aims to expand its RE asset portfolio up to 2.5GW by end-2025 and it is confident of achieving the target,” it said.
Kenanga also noted that offshore wind farms and battery energy storage are the key areas that will drive future growth due to the nature of the UK’s weather as an offshore wind farm (45%−60% efficiency) is able to generate 6 times more than a solar farm (11%−12% efficiency).
“Vantage RE prefers greenfield expansion due to the higher returns although it is also looking at brownfield projects, especially in new
markets such as Ireland, France, Spain and possibly Italy. In terms of financing, it sees good access, riding on TNB’s strong balance sheet and the keen interest from many Japanese banks in the UK.
“The UK’s energy policies are generally supportive of RE as various policies and schemes are in place to achieve the country’s net-zero
target by 2050 and it has several schemes to support RE growth including contracts for difference (CfD) subsidy scheme and RE Guarantees of Origin (REGO),” it said.
The research house added that there are four route-to-market options for RE generators in the UK, which range from traditional PPAs (including merchant or utility PPAs and corporate PPAs) to CfD and private wire, which Vantage RE’s portfolio currently is a mix of CfD and corporate PPAs.
“We continue to like TNB for its dominance in power generation, transmission and distribution in Malaysia, its defensive earnings backed a resilient domestic economy and assets that are largely regulated, and its heavyweight index-linked stock status,” it added.
Kenanga’s risks to recommendation include ballooning under-recovery of fuel costs straining its cash flows, a global recession hurting demand for electricity, and non-compliance of ESG standards set by various stakeholders.
