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
| Key Metrics (MYR m) | FY23A | FY24A | FY25E | FY26E | FY27E |
|---|---|---|---|---|---|
| Revenue | 63,665 | 65,835 | 67,497 | 70,301 | 73,424 |
| EBITDA | 14,484 | 16,112 | 16,952 | 18,165 | 19,843 |
| Core Net Profit | 3,735 | 4,847 | 4,714 | 5,286 | 5,853 |
| Core FDEPS (sen) | 64.4 | 83.4 | 81.1 | 90.9 | 100.7 |
| Net DPS (sen) | 46.0 | 51.0 | 40.5 | 45.5 | 50.3 |
| Net Dividend Yield (%) | 4.6 | 3.4 | 2.9 | 3.2 | 3.6 |
| Core FD P/E (x) | 15.6 | 17.9 | 17.3 | 15.4 | 13.9 |
| ROAE (%) | 5.9 | 9.0 | 7.7 | 8.3 | 8.8 |
| Net Gearing (%) | 66.7 | 59.7 | 59.4 | 65.4 | 69.5 |
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.
