Broker: UOB Kay Hian
Date of Report: Friday, 29 August 2025
Tenaga Nasional Bhd: Solid Fundamentals, Dividend Appeal, and Strategic Growth Amid Earnings Headwinds
Overview: Tenaga Nasional Bhd’s 2Q25 Performance and Investment Outlook
Tenaga Nasional Berhad (TNB), Malaysia’s leading electricity generator and distributor, reported its 2Q25 results, reflecting operational resilience amid notable cost pressures and the absence of reinvestment tax allowance. Despite softer net profits, the company’s fundamentals remain robust, supported by healthy electricity demand, improving generation costs, and a strong dividend commitment. UOB Kay Hian maintains a BUY recommendation with a discounted cash flow (DCF)-based target price of RM16.30, projecting a 21.3% upside from the current share price of RM13.44.
Company Snapshot: Essential Data and Shareholder Overview
- Share Price: RM13.44
- Target Price: RM16.30 (Upside: 21.3%)
- Market Cap: RM78.34 billion (US\$18.58 billion)
- Shares Outstanding: 5,829.1 million
- GICS Sector: Utilities
- Major Shareholders: EPF (18.9%), Khazanah Nasional (18.1%), Amanah Saham Nasional (12.3%)
2Q25 Financial Highlights: Soft Profitability Amid Higher Costs
| Metric |
2Q25 |
1Q25 |
2Q24 |
YoY Change |
QoQ Change |
| Revenue (RMm) |
16,835 |
16,039 |
14,367 |
+17.2% |
+5.0% |
| EBITDA (RMm) |
4,087 |
4,230 |
4,163 |
-1.8% |
-3.4% |
| EBITDA Margin (%) |
24.3 |
26.4 |
29.0 |
-4.7ppt |
-2.1ppt |
| Pretax Profit (RMm) |
1,601 |
1,555 |
1,767 |
-9.4% |
+3.0% |
| Net Profit (RMm) |
1,158 |
1,058 |
1,444 |
-19.8% |
+9.5% |
| Core Net Profit (RMm) |
998 |
1,202 |
1,426 |
-29.9% |
-16.9% |
Key Observations: Operational and Cost Dynamics
- 1H25 Core Net Profit: RM2.2 billion, down 13% year-over-year, meeting 47% of UOB Kay Hian’s full-year expectations.
- Opex Pressures: Higher repair, maintenance, and cyber-security spending, plus increased depreciation and a higher effective tax rate due to the expiry of the reinvestment tax allowance.
- No Tax Provision: No provision was made for the ongoing income tax dispute, providing a short-term boost to reported net profit.
- Foreign Shareholding: Increased to 19.6% as of July 2025, from 17.6% in December 2024.
Dividend Policy: Attractive Yields and Strong Payout Commitment
- Interim Dividend: 25 sen/share declared for 1H25, as expected.
- Dividend Outlook: Management targets a payout of at least 60% of net profit for 2025-2027.
- 2025F Net DPS: Projected at 51 sen/share, translating to a net dividend yield of 4%.
Demand, Costs, and Margins: A Closer Look at 2Q25 Electricity Operations
- Electricity Demand: Rose 2% year-over-year and 7% quarter-over-quarter, driven by robust industrial and commercial sectors.
- Generation Costs: Fell to 19.4 sen/kWh in 2Q25, down from 21.4 sen/kWh in 2Q24 on the back of declining global coal prices.
- Coal Prices: Averaged US\$100.1/tonne, down 10.7% YoY and 4.8% QoQ. Coal consumption increased 14.3% QoQ and 10.3% YoY.
- Gas Prices: RM79.1/MMBtu, up 80% YoY and 92% QoQ, with daily gas allocation down 14.5% YoY.
- EBITDA Margin: Declined 5 percentage points YoY and 2 points QoQ due to a surge in operating expenses, particularly from software and cyber-security systems.
Financial Forecasts and Key Metrics
| Metric |
2024 |
2025F |
2026F |
2027F |
| Net Turnover (RMm) |
56,737 |
59,022 |
61,616 |
64,286 |
| EBITDA (RMm) |
20,542 |
21,450 |
22,171 |
22,866 |
| Net Profit (Adj., RMm) |
4,329 |
4,349 |
4,642 |
4,940 |
| EPS (sen) |
65.7 |
76.1 |
76.5 |
81.6 |
| PE (x) |
20.5 |
17.7 |
17.6 |
16.5 |
| Net Margin (%) |
8.3 |
7.4 |
7.5 |
7.7 |
| Net Debt/Equity (%) |
62.6 |
66.2 |
61.2 |
56.3 |
| Dividend Yield (%) |
3.8 |
3.8 |
3.9 |
4.2 |
| ROE (%) |
7.9 |
7.1 |
7.4 |
7.8 |
Valuation and Recommendation: BUY with Strategic Upside Catalysts
- DCF-based Target Price: RM16.30 (Discount Rate: 8%, Growth Rate: 1%)
- Valuation Multiple: Implies 17.3x 2025F EPS, representing a +2SD premium to the five-year mean PE.
- Equity Risk Premium: Recently reduced from 8.2% to 7.8% to reflect enhanced tariff autonomy and gradual decoupling of tariffs from government oversight.
Key Re-rating Catalysts:
- Autonomy to adjust electricity tariffs by up to 7% without Cabinet approval every six months.
- Potential recognition of contingent capex in the 2026-27 earnings window.
- Possible listing of a profitable generation or renewable energy division.
- Earnings-accretive mergers and acquisitions.
Risks:
- Unprofitable or lumpy overseas renewable energy projects.
- Foreign exchange risk affecting operating cash flow.
Environmental, Social, and Governance (ESG) Commitments
Environmental Initiatives:
- Targeting 8,300MW in renewable energy (RE) generation by 2025 (up from 3,398MW in December 2020).
- Pledge to reduce emission intensity by 2035, achieve net zero by 2050, and eliminate coal usage by 2050.
Social Contributions:
- Donated RM4.36 million to COVID-19 relief efforts.
- Distributed medical equipment (ventilators, PPE) to government hospitals.
- Contributed RM1 million to light up security posts during the MCO period.
Governance:
- Transparent operations with anti-bribery and whistle-blowing policies in place.
Balance Sheet and Cash Flow Highlights
| Metric |
2024 |
2025F |
2026F |
2027F |
| Fixed Assets (RMm) |
125,611 |
124,977 |
124,396 |
123,864 |
| Total Assets (RMm) |
205,056 |
201,775 |
203,808 |
205,945 |
| Net Debt/Equity (%) |
62.6 |
66.2 |
61.2 |
56.3 |
| Cash & ST Investments (RMm) |
19,601 |
16,302 |
18,185 |
20,098 |
| Ending Cash (RMm) |
15,369 |
12,070 |
13,953 |
15,866 |
Conclusion: Tenaga Nasional Bhd Remains a Defensive, High-Yield Play with Growth Catalysts
TNB’s 2Q25 performance, while affected by non-recurring cost headwinds, remains fundamentally strong. The stock’s appeal is underpinned by its defensive utilities profile, attractive dividend yield, and potential re-rating catalysts including regulatory autonomy and renewable energy expansion. Investors seeking exposure to a resilient, yield-rich Malaysian blue chip with visible growth drivers should keep TNB firmly on their radar.
