Broker: Maybank Investment Bank Berhad
Date of Report: May 28, 2025

Tenaga Nasional Berhad: A Positive Start to FY25 with Earnings Upgrade and Re-Rating Potential

Overview: Robust Performance and Upgraded Outlook

Tenaga Nasional Berhad (TNB), Malaysia’s leading utilities provider, has kicked off FY25 with a strong yet nuanced performance. Maybank Investment Bank Berhad has upgraded TNB to a BUY, raising its DCF-based target price to MYR15.50—a 7% increase—reflecting notable improvements in earnings projections and positive regulatory developments.

Key Highlights and Investment Thesis

• 1Q25 Core Net Profit: MYR1,184 million (up 11% YoY, down 28% QoQ), representing 25% of full-year forecasts.
• Dividend: No dividend declared for the quarter, consistent with historical practice.
• Revenue Shortfall: MYR2.0 billion shortfall in regulated revenue due to lower-than-expected demand and an unchanged tariff schedule.
• Upgrade to BUY: TP raised to MYR15.50, with a 50% dividend payout ratio (implying ~3% yield).
• Potential Catalysts: Finalization of the recovery mechanism for the Industry Fund could drive further re-rating.

1Q25 Financial and Operational Review

Results in Line, With Some Volatility

• Core net profit (pre-MFRS 16): MYR1,184 million, up 11% YoY but down 28% QoQ due to a high base in 4Q24 (MYR816 million impairment reversal).
• MFRS 16 impact: Raised 1Q25 EBITDA by MYR957 million but lowered net profit by MYR159 million.
• EBITDA: MYR4,236.7 million (up 11.8% YoY, down 7.5% QoQ).
• Revenue: MYR15,863.5 million (down 0.8% YoY, down 1.5% QoQ).

Demand and Generation Trends

• Electricity demand: Down 3.0% QoQ and 1.2% YoY (1Q25 total: 31,509 GWh).
• Industrial segment: Fell 5.1% QoQ and 5.5% YoY, dragging overall demand.
• Commercial segment: Up 5.1% YoY but down 2.5% QoQ.
• Domestic segment: Down 4.0% YoY and 0.9% QoQ.
• Generation mix: Coal at 58.0% (down 0.6ppt QoQ), gas at 34.4%, hydro & solar at 7.6%.
• Coal prices: Fell 8% QoQ to MYR465.9/ton (down 13.1% YoY).

Cost and Tariff Developments

• Over-recovery on generation costs: MYR175 million over-recovered in 1Q25 due to lower coal prices and higher reference prices.
• Regulated revenue shortfall: MYR2.0 billion deficit as tariffs weren’t revised and demand was below reference levels (compare to MYR246 million surplus in 4Q24).

Industry Fund and Capex Implications

Potential Recovery via Industry Fund

• TNB may use the Industry Fund to recover returns on contingent capex, supporting earnings stability.
• Maybank has incorporated MYR5 billion of contingent capex for both FY26E and FY27E, boosting net profit forecasts by 3% and 7% for those years, respectively.

Revised Earnings and Valuation Table

Balance Sheet and Cash Flow Analysis

• Total Assets (FY25E): MYR208.1 billion
• Shareholders’ Equity (FY25E): MYR62.7 billion
• Net Debt (FY25E): MYR38.6 billion
• Capex (FY25E): MYR13.0 billion (rising to MYR18.0 billion in FY26E and FY27E)
• Free cash flow (FY25E): MYR3.1 billion (turns negative in FY26E at -MYR1.1 billion due to higher capex)

Operational Metrics and Efficiency

• Revenue/Asset ratio: Remains steady at 0.3x.
• Cash Conversion Cycle: Improving, with days receivable falling from 118.1 in FY23A to 83.1 in FY25E.
• EBITDA Margin: Rising from 22.8% in FY23A to a projected 27.0% in FY27E.
• Capex/Revenue Ratio: Expected to increase to 25.6% in FY26E, reflecting heavy investment in grid and contingent capex.

Valuation and Shareholder Returns

• DCF-based Target Price: MYR15.50 (raised from MYR14.50)
• Dividend Payout Policy: Maintained at 50% of core net profit.
• Implied Dividend Yield: ~3% at current price levels.

Shareholding Structure and Market Performance

• Major Shareholders:
  • Khazanah Nasional Bhd: 20.4%
  • Employees Provident Fund: 20.1%
  • Permodalan Nasional Bhd: 7.1%
• Market Capitalisation: MYR81.6 billion (USD19.3 billion)
• 52-week High/Low: MYR15.04 / MYR12.82
• Free Float: 57.2%
• 3-month Average Turnover: USD22.7 million
• Recent Price Performance:
  • 1 month: +3% absolute, +2% relative
  • 3 months: +3% absolute, +7% relative
  • 12 months: +6% absolute, +12% relative

Risk Factors

• Regulatory Risk: Changes in regulated returns impact earnings directly.
• Operational Risk: Plant outages and shifts in electricity demand could affect profitability.
• Market Risk: Fluctuations in fuel prices, especially coal and gas.

Conclusion: Solid Fundamentals and Upward Momentum

Tenaga Nasional Berhad’s 1Q25 results demonstrate resilience and adaptability amid market and regulatory shifts. With a revised earnings outlook, continued capex investments, and the prospect of regulatory clarity on recovery mechanisms, TNB is positioned for sustained growth. The recent upgrade to BUY, with a target price of MYR15.50, reinforces confidence in TNB’s ability to deliver value to shareholders, despite near-term demand softness and regulatory challenges.
Investors can look forward to a blend of stable dividends, capital appreciation, and long-term strategic positioning as TNB navigates the evolving Malaysian power sector.