Kuala Lumpur: An analyst has viewed Tenaga Nasional Bhd (TNB) as a relative safe haven given its earnings resilience and undemanding valuation, amid the prevailing market volatility.
According to BERNAMA News Agency, Maybank Investment Bank Bhd noted that TNB’s medium-term earnings are anchored by a fixed return on a growing domestic-centric regulated asset base, with potential upside risk from contingent capital expenditure (capex) deployment and recovering generation contribution.
The bank highlighted that TNB’s earnings rely heavily on a regulated earnings base, which makes up more than 70 percent of its total earnings. The Regulatory Period 4 (RP4) base tariff reflects a three-year base capital expenditure of RM26.6 billion, marking a 29 percent increase from RP3, on a 7.3 percent regulated return.
Furthermore, the contingent capex of RM16.3 billion, also based on a 7.3 percent return, is not included in the base tariff and thus not factored into current forecasts. The recovery mechanism for this is still being finalized. Maybank Investment estimates that fully deploying the contingent capex could increase the financial year 2027’s estimated net profit by approximately eight percent.
The investment bank also noted that the generation’s contribution to TNB’s consolidated earnings is not immediately apparent due to distortions in reported GenCo (generation company) earnings by fuel margins. However, they expect a recovery in generation contribution in the coming years, particularly with Manjung 4 now operational following its extended outage in 2024.
Additionally, with coal prices trending down and the rebasing of reference coal prices in RP4, there should be lower imbalance cost pass-through surcharges. This development is expected to alleviate public pressure on net bill changes when the revised tariff schedule comes into effect in the latter half of 2025.
As a result, Maybank Investment Bank has maintained a ‘hold’ recommendation on TNB, with an unchanged discounted cash flow-based target price of RM14.50.