Tenaga Nasional Berhad’s generation arm (GenCo) is showing significant operational improvements, with stronger plant performance and a growing contribution to the group’s overall earnings, according to a report by CGS.
CGS said GenCo’s earnings contribution has become increasingly meaningful, with normalised profit after tax improving for five consecutive quarters to reach RM219 million in the first quarter of 2026 (1Q26).
This compares with an average quarterly normalised PAT of RM109 million between 1Q24 and 4Q25, highlighting a substantial improvement in GenCo’s performance.
The stronger results lifted GenCo’s contribution to TNB’s group PAT to 19% in 1Q26, compared with an average quarterly contribution of around 6% between 2021 and 2025.
The improvement was attributed to better operational efficiencies driven by digital initiatives, optimised maintenance activities and overhaul works at its coal-fired power plants.
CGS noted that GenCo’s plant availability factor has improved significantly, rising from a low of 75% in 1Q24 to 91% in 1Q26, representing a 16 percentage point increase and the highest level in more than six years.
In addition, GenCo benefited from stronger dispatch levels during the quarter as elevated outage rates at other plants within the electricity system resulted in higher utilisation of TNB’s generation fleet.
Based on the 1Q26 performance run rate, CGS estimates that GenCo could potentially deliver annualised PAT of approximately RM875 million, compared with RM420 million to RM450 million recorded during 2024 and 2025.
“While limited disclosures make explicitly modelling GenCo earnings difficult, quarterly data suggest it is emerging as a more meaningful contributor to the group, supported by improving operational performance,” CGS said.
Beyond improving existing operations, GenCo’s future growth prospects are also strengthening following TNB’s recent turbine reservations with Mitsubishi Power Ltd.
On June 4, TNB signed reservation agreements for six gas turbines with an estimated combined capacity of about 4.2 gigawatts (GW), securing access to turbine supply amid tightening global availability.
CGS said the agreements could pave the way for TNB’s conversion of several planned combined-cycle gas turbine (CCGT) projects into firm awards, as Malaysia faces rising electricity demand and the need for additional generation capacity.
TNB currently has a 5.6GW CCGT pipeline, comprising projects at the Letter of Intent stage.
This is in addition to the 1.4GW new Paka CCGT project secured under the NEWGEN25 programme.
CGS estimates that a 1.4GW CCGT facility could generate between RM200 million and RM250 million in annual PAT, assuming project internal rates of return (IRR) of 8% to 9%.
Based on the current pipeline, potential earnings contribution from new capacity could reach RM800 million to RM1 billion, although some projects would replace ageing generation assets.
The report noted that newer and more efficient plants could still provide an uplift to GenCo’s earnings through improved operational efficiency.
CGS reiterated its “Add” recommendation on TNB with a target price of RM16.60, citing the company’s role as a key beneficiary of Malaysia’s energy transition and power sector investment cycle.
The research house said higher regulatory period (RP4) transmission and distribution capital expenditure would support earnings visibility and recurring income growth.
Meanwhile, improving GenCo performance and potential CCGT project wins could provide additional upside opportunities.
At current valuations, TNB is trading at an undemanding level of 7.6 times 2026 estimated adjusted EV/EBITDA, compared with regional power sector peers trading between 9 and 16 times.
CGS believes TNB could see a valuation re-rating driven by stronger data centre demand, faster capital expenditure deployment and new generation capacity awards.
Key downside risks include higher operating costs, fuel price volatility and unfavourable regulatory changes.
