Tenaga Nasional Bhd (TNB) is well-positioned to benefit from Malaysia’s expanding data centre industry, with robust electricity demand expected to drive higher capital expenditure and earnings growth, according to RHB Research.
Following a meeting with TNB’s senior management, the research house maintained its “Buy” recommendation on the utility giant with an unchanged target price of RM16.50, implying around 15% upside from current levels, alongside an estimated 4% dividend yield.
RHB also highlighted a potential 5% upside to its valuation should TNB secure another gas-fired power plant under the government’s New Generation Capacity 2029–2031 (NEWGEN26) programme.
Data centre demand remains strong
TNB said it has secured electricity supply agreements for 59 data centre projects with a combined capacity of 8.3GW.
Of these, 36 projects have already been completed, representing 4.5GW of maximum capacity.
The utility noted that all data centre customers are signed under five-year take-or-pay agreements, allowing TNB to recover its capital expenditure regardless of actual electricity consumption during the contract period.
Around 72% of the data centre investments originate from the United States and Singapore, while 68% of the total capacity is concentrated in Johor, reinforcing the state’s position as Malaysia’s primary data centre hub.
Management expects demand to remain resilient and continues targeting the addition of approximately 1GW of new data centre capacity annually.
Expansion plans support long-term demand
To meet rising electricity requirements, particularly from artificial intelligence (AI) and cloud computing facilities, TNB plans to add 11.8GW of new generation capacity by 2033.
This expansion is expected to offset the retirement of 6.6GW of ageing generation assets, leaving a net increase of 5.2GW, which management believes will provide a comfortable reserve margin while accommodating future demand growth.
TNB has also secured six gas turbines, including two allocated for its 1.4GW Paka power plant, which was awarded under the NEWGEN25 programme.
The company has submitted a bid for the NEWGEN26 tender, which closed on 1 July, and RHB believes TNB remains a strong contender given the government’s objective of adding around 6GW of new generation capacity by 2030.
Should TNB secure another 1.4GW project, RHB estimates this could lift its target price by approximately 5%.
Tax rate expected to normalise
Despite reporting an effective tax rate (ETR) of 31% during the first quarter of 2026, management reaffirmed its full-year guidance of 23% to 24%.
TNB expects its tax rate to decline over the remainder of the year as discussions with regulators regarding the application of available tax incentives progress.
RHB estimates that if TNB achieves a 23% ETR, compared with its current forecast of 26%, earnings and target price could each increase by roughly 4%.
NETR remains a key catalyst
RHB said TNB remains its preferred utility stock, citing its central role in implementing Malaysia’s National Energy Transition Roadmap (NETR).
The research house believes the regulated nature of TNB’s business provides stable earnings visibility, while continued investment in power infrastructure to support renewable energy and data centres offers long-term growth potential.
However, RHB cautioned that potential downside risks include the introduction of a carbon tax, delays in regulatory approval for capital expenditure projects, and a higher-than-expected effective tax rate.
