TNB’s Priced To Perfection

Tenaga Nasional Berhad’s (Tenaga) 1QFY24 result came in within expectations. The group reported a core net profit of RM912m for its 1QFY24 (normalised for forex translation loss of -RM197m), MIDF Research cited on a note today (June 4).

No dividends were declared for the quarter.

Core earnings contracted -6.3%yoy mainly due to a reduction in other operating income. Additionally, Genco remained in the red with an -RM80m LAT despite stabilising fuel margin loss, given capacity payment loss of -RM141m arising from Manjung 4 outage since late-4QFY23.

These negatives were partly offset by a reduction in finance cost (-15%yoy) as Tenaga progressively pared down borrowings throughout FY23 in tandem with reduced working capital requirement given moderating fuel cost. Demand growth.

Demand grew +9.6%yoy to 31.9TWh mainly driven by the domestic (+17%yoy) and commercial (+11%yoy) segments.

However, Tenaga’s allowed annual revenue for revenue-cap entities is capped at 118.1TWh demand this year (+1.7%yoy) – excess demand of 2.4TWh in 1QFY24 was adjusted under the revenue-cap mechanism.

Group RE capacity stood at 4.3GW comprising 73% domestic and 27% international capacity, making up 20% of total generation portfolio. TNBI, which houses the group’s international RE assets saw revenue growth of +50%yoy in 1QFY24 thanks to contribution from newly acquired solar portfolio in Ireland (276MW) in Dec-23 and higher locked in PPA prices in 2024 within Vantage RE’s portfolio.

However, TNBI’s contribution to the group is currently small at 1.5% of Tenaga’s gross revenue. MIDF research maintains a NEUTRAL call on Tenaga and have raised their TP  to RM11.52 from RM11.00 as they rollover their valuation base to FY25F.

MIDF Research likes Tenaga as a beneficiary of the energy transition but they believe valuations have run ahead of fundamentals at this juncture.

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