Broker: Maybank Investment Bank Berhad
Date of Report: July 3, 2025

Tenaga Nasional Faces Tax Hurdles but Remains a Resilient Dividend Play: Comprehensive Analysis & Outlook

Introduction: Tax Overhang Clouds Tenaga Nasional’s Outlook

Tenaga Nasional Berhad (TNB), Malaysia’s largest electricity utility, is once again under the investor spotlight following a surprise tax ruling that could extend a long-standing overhang on its share price. Despite this headwind, TNB’s operational earnings remain robust, and its healthy cash reserves suggest that dividend risk is low. Maybank Investment Bank Berhad maintains a BUY rating on TNB, with a target price of MYR15.50, highlighting both the risks and the enduring strengths of the company.

Federal Court Ruling: Tax Dispute Takes a New Turn

On July 2, 2025, the Federal Court ruled in favor of Malaysia’s Inland Revenue Board (IRB) in TNB’s 2018 tax dispute. The court determined that TNB, as a utility company, should have applied for an investment allowance under Schedule 7B (for services sector), rather than the reinvestment allowance under Schedule 7A. This technicality has significant implications for TNB’s outstanding tax cases for other years, potentially prolonging an overhang that has weighed on investor sentiment.

• The 2018 additional assessment was valued at MYR1.25 billion.
• TNB will now pursue a claim for investment allowance under Schedule 7B and has cautioned about a possible negative impact on FY25 earnings (likely through provisions).
• The Federal Court’s decision is expected to affect TNB’s remaining tax cases relating to other assessment years.

Tax Exposure: Quantifying the Value at Risk

The tax dispute is substantial, but TNB’s financial strength offers reassurance. The total outstanding tax disputes are estimated at MYR5.05 billion, representing about 6% of TNB’s market capitalization, or approximately MYR0.87 per share. Importantly, this exposure is manageable relative to TNB’s cash reserves, minimizing the risk to dividend payouts.

Operational Resilience: Earnings and Dividend Outlook

Despite the tax headwinds, TNB’s core business remains strong:

• Revenue is expected to grow steadily from MYR65.8 billion in FY24A to MYR73.4 billion by FY27E.
• EBITDA is forecasted to rise from MYR16.1 billion in FY24A to MYR19.8 billion by FY27E.
• Core net profit is projected at MYR4.7 billion for FY25E, increasing to MYR5.85 billion by FY27E.
• Dividend payout is maintained at 50%, implying a yield of around 3%.

TNB’s free cash flow is expected to remain healthy, although higher capex in FY26E and FY27E (up to MYR18 billion annually) will temporarily compress free cash flows before rebounding.

Valuation and Shareholder Structure

• Market capitalization: MYR85.1 billion (USD20.1B)
• Issued shares: 5,829 million
• Major shareholders: Khazanah Nasional Bhd (20.4%), Employees Provident Fund (20.1%), Permodalan Nasional Bhd (7.1%)
• 12-month price target: MYR15.50 (9% upside from current MYR14.60)
• Free float: 57.2%

Maybank’s valuation is based on DCF methodology with a 7.5% WACC and 2% long-term growth rate, resulting in an equity value per share of MYR15.50.

Risk Factors Impacting Tenaga Nasional

Several risks could impact TNB’s earnings, target price, and rating, including:

• Regulatory changes affecting regulated returns
• Shifts in electricity demand patterns
• Unplanned plant outages
• Prolonged tax dispute resolution timelines

Key Financial Ratios and Performance Metrics

• Core P/E (FY25E): 18.0x
• P/BV (FY25E): 1.4x
• ROAE (FY25E): 7.7%
• Net gearing (FY25E): 59.4%
• Dividend cover (FY25E): 2.0x
• Capex/Revenue (FY26E): 25.6%

Liquidity, Efficiency, and Leverage Analysis

• Current ratio (FY25E): 1.1x
• Debt/EBITDA (FY25E): 3.4x
• Free cash flow yield (FY25E): 3.6%
• Net interest cover (FY25E): 4.1x
• Cash conversion cycle (FY25E): 4.1 days

Company Profile and Market Performance

TNB is a fully integrated utility, involved in the generation, transmission, distribution, and sale of electricity in Malaysia. It also provides related services and has consistently delivered resilient operational earnings despite regulatory and external challenges.

• 52-week high/low: MYR15.04 / MYR12.82
• 3-month average turnover: USD24.5 million
• TNB’s share price has shown steady performance relative to the Kuala Lumpur Composite Index, with positive returns over 1, 3, and 12 months.

Conclusion: Investment Thesis Remains Intact Despite Overhang

While the recent Federal Court ruling on TNB’s tax dispute introduces new complexity and extends the resolution timeline, the company’s financial position remains robust. The value at risk is manageable, and dividend sustainability is underpinned by strong cash reserves. Operational earnings are resilient, with scope for upside from contingent capex deployment.
Maybank Investment Bank Berhad reiterates its BUY recommendation, with a price target of MYR15.50. Investors should monitor developments in the tax dispute, but TNB’s fundamentals and dividend profile remain attractive for long-term holders.

About Maybank Investment Bank Berhad

Maybank Investment Bank Berhad is a leading investment research provider in Malaysia and the region, offering in-depth market insights and financial analysis to institutional and retail investors.

Contact Information

For further inquiries, reach out to the research analyst or visit Maybank’s official website for comprehensive coverage and updates on Tenaga Nasional and other listed companies.
Key Investment Takeaways:

• Tax overhang persists, but operational fundamentals are solid
• Dividend risk is low due to strong cash reserves
• BUY rating with MYR15.50 target price; 9% upside potential
• Monitor for tax dispute developments and regulatory updates