RHB Research has maintained its BUY call on Tenaga Nasional Berhad (TNB) with a target price of RM16.50, as a potential 1.5GW on-site power generation project for DayOne Data Centre could provide an 8% upside to the utility group’s FY28 earnings and valuation.
The research house said TNB and DayOne have signed a memorandum of understanding to explore the possibility of supplying 1.5GW of on-site power generation to DayOne’s data centre operations in Selangor.
Both parties will conduct feasibility studies to determine the project’s final generation capacity, configuration and implementation, including potential battery energy storage system (BESS) solutions.
RHB’s RM16.50 target price implies about 20% upside, alongside a forecast dividend yield of approximately 4% for FY26.
RHB believes TNB could potentially supply renewable energy to DayOne through the Corporate Renewable Energy Supply Scheme (CRESS).
Assuming TNB develops 1.5GW of solar generation capacity, incorporates BESS equivalent to 50% of capacity and holds a 70% stake in the project, RHB estimates the investment could generate a 10% internal rate of return.
Under those assumptions, the project could contribute around RM448 million to TNB’s FY28 earnings, equivalent to about 8% of RHB’s current FY28 net profit forecast.
The research house estimated that successful realisation of the project could similarly provide about 8% upside to its target price.
The latest collaboration would broaden TNB’s existing relationship with DayOne.
Earlier this year, the two parties signed a 21-year CRESS agreement under which renewable electricity would be supplied to DayOne from a 595MWac Hybrid Hydro Floating Solar project in Kenyir.
RHB previously estimated that project alone could contribute about 3% of TNB’s FY28 net profit.
The research house also highlighted the government’s requirement for data centres to source 30% of their energy supply from renewable sources, potentially creating further opportunities for TNB as Malaysia’s data centre industry expands.
Beyond direct renewable generation opportunities, RHB sees the growth of data centres as supportive of TNB’s regulated capital expenditure.
New data centres are required to enter into energy supply agreements (ESAs) with TNB for electricity supplied from the grid.
TNB has so far signed 8.4GW of ESAs and is targeting another 5GW over the next few years, according to the report.
RHB said the expanded DayOne collaboration could contribute to a larger pipeline of ESAs, supporting TNB’s capex utilisation.
Management also remains hopeful of securing two-thirds of its Regulatory Period 4 capex approvals. RHB estimated achieving this level could lift its FY26 earnings-per-share forecast and target price by another 7%.
RHB made no changes to its FY26 and FY27 earnings forecasts for now, with the potential DayOne project yet to be incorporated into its base-case projections.
Its RM16.50 target price, which incorporates a 4% environmental, social and governance discount, is based on 19 times FY26 forecast earnings, equivalent to one standard deviation above TNB’s three-year mean valuation.
RHB believes the premium is justified by TNB’s position as a major beneficiary of Malaysia’s National Energy Transition Roadmap, while its regulated business framework provides a relatively stable earnings base.
There could also be upside from a lower effective tax rate (ETR). If TNB records a 23% ETR this year instead of RHB’s current assumption of 26%, the research house estimates a further 4% upside to its earnings forecast and target price.
Key downside risks identified by RHB include delays in capex approvals and a higher-than-expected effective tax rate.
