Introduction
In the ever-evolving landscape of the utilities sector, Tenaga Nasional Berhad (TNB) stands as a significant player in generating and distributing electricity across Peninsular Malaysia and Sabah. This comprehensive analysis delves deep into TNB’s financial performance, stock valuation, and future prospects, providing insights for investors and stakeholders.
Company Overview
Tenaga Nasional Berhad, a major utility provider, is listed under the utilities sector with a market capitalization of RM81,265 million. Its share price as of the report stands at RM13.98, with a target price set at RM13.20, indicating a downside of 5.6%.
Financial Performance
The third quarter of 2024 (3Q24) was marked by a core net profit of RM750 million, reflecting a sequential decline of 44% quarter-on-quarter and 7% year-on-year. This brings the nine-month net profit for 2024 to RM3 billion, which remains flat year-on-year but below the expectations set by analysts. The company attributes this performance to higher non-fuel operating expenses and reduced contributions from TNB Genco.
Key financial metrics for the year ending 31 December 2024 include a revenue of RM66,318 million, EBITDA of RM21,695 million, and a net profit of RM4,357 million. The earnings per share (EPS) is projected at 76.6 sen with a price-to-earnings (PE) ratio of 18.2x and a dividend yield of 3.5%.
Stock Performance and Valuation
Despite the weaker-than-expected profits, TNB’s stock is viewed as fairly valued. The company maintains a “HOLD” recommendation with a discounted cash flow (DCF)-based target price of RM13.20 per share. The valuation encompasses assumptions including a discount rate of 8% and a growth rate of 1%, positioning TNB as a key beneficiary of Malaysia’s National Energy Transition Roadmap (NeTR) program.
Operational Insights and Future Outlook
Electricity demand saw a 6% year-on-year increase in 3Q24, driven by industrial and commercial segments. Generation costs remained stable, while EBITDA margins experienced a decline due to higher repair and maintenance costs. TNB anticipates investing an additional RM35 billion in regulatory capital expenditure over the next five years to support renewable energy initiatives and stabilize electricity supply.
Looking ahead, TNB is in the process of its final submission for Regulatory Period 4 (RP4), which spans 2025-2027. The outcome of these discussions is expected to include adjustments in weighted average cost of capital (WACC), increased capital expenditure, and higher electricity demand projections.
Environmental, Social, and Governance (ESG) Initiatives
TNB is committed to enhancing its ESG profile, targeting 8,300MW in renewable energy generation capacity by 2025 and pledging to achieve net-zero emissions by 2050. Socially, the company has demonstrated its commitment by donating to COVID-19 relief efforts and supporting government hospitals with necessary medical supplies. TNB upholds strong governance practices with transparency and anti-bribery policies.
Conclusion
Tenaga Nasional Berhad continues to navigate the challenges and opportunities within the utilities sector. While the current financial performance reflects certain operational headwinds, the company’s strategic investments and ESG commitments position it for sustained growth and resilience in the long term. Investors are advised to maintain a “HOLD” stance while monitoring developments closely.
