Malaysia’s Tenaga Nasional Bhd (TNB) demonstrated a robust demand trend in its first-quarter results, according to an analysis by Maybank Investment Bank (Maybank IB) Bhd. The utility giant reported a 1.7% quarter-on-quarter (QoQ) growth in electricity generation during the first quarter of 2024 (1Q24). Interestingly, there was also a notable shift away from coal generation, with a 3.1% QoQ decline, bringing coal’s proportion down to 52.5% in the same quarter, partially attributed to a 1% QoQ increase in coal prices.
Maybank IB observed that TNB’s under-recoveries of electricity generation costs rose to RM2.35 billion from RM2.1 billion in the previous quarter (4Q23). On a positive note, regulated revenue showed a surplus position of RM468 million in 1Q24, driven by a combination of higher realized tariffs and higher-than-budgeted demand.
Despite the anticipated increase in demand for TNB’s services, Maybank IB remains cautious about the financial year ending Dec 31, 2024, citing expectations of generally suppressed earnings. However, the research house expressed optimism about the longer-term outlook, highlighting potential benefits from elevated grid capital expenditure for renewable energy transition and new generation projects, particularly to meet the rising demand from data centers.
Maybank IB emphasized that TNB’s 1Q24 results were consistent with its valuations. Excluding the effects of the Malaysian Financial Reporting Standard 16 (MFRS16), the core net profit for 1Q24 amounted to RM1.071 billion, representing 27% to 29% of Maybank IB’s full-year forecasts.
Addressing the impact of MFRS16, the accounting standard raised earnings before interest, taxes, depreciation, and amortization by RM1.04 billion in 1Q24, while simultaneously lowering net profit by RM159 million.
Looking ahead, TNB is set to host a briefing to discuss various key topics, including progress on the National Energy Transition Roadmap, negotiations for Regulatory Period 4, and Genco outages.
Maybank IB has maintained its “hold” rating on TNB’s stock, setting a higher discounted cash flow-based target price of RM13.50 per share.
