PETALING JAYA: Tenaga Nasional Bhd’s (TNB) earnings recovery remains intact despite its sluggish performance in the first half of 2023 (1H23).

       In tandem with economic recovery, as well as the increasing number of new data centres in Malaysia, the utility giant expects demand for electricity to grow over the immediate term. In addition, the stabilisation of coal prices is expected to alleviate its cost pressures.

       This optimism was conveyed to analysts at a recent briefing following the release of TNB’s financial results for the second quarter ended June 30, 2023 (2Q23).

       In its report, Hong Leong Investment Bank (HLIB) Research said it stayed positive on TNB’s earnings outlook under the Regulatory Period 3 and Imbalance Cost Pass Through (ICPT) mechanisms.

       “We expect earnings to improve in coming quarters as coal prices stabilise.

       “We also view positively TNB’s position as Malaysia largest utilities group to leverage onto the National Energy Transition Roadmap,” the brokerage wrote.

       HLIB Research maintained its “buy” call on TNB, with an unchanged target price of RM11.75.

       StarPicks

       Indulge in tradition and taste

       Similarly positive on TNB’s prospects, Kenanga Research kept its “outperform” call on the company, with an unchanged target price of RM11.15.

       “In addition to economic recovery, the demand for electricity over the immediate term will be driven the proliferation of new data centres, and to a lesser extent, the adoption of electric vehicles in Malaysia,” the brokerage said.

       It noted that TNB would benefit from the proliferation of new data centres in Malaysia given their huge appetite for electricity.

       “Over the next 12 months, five new data centres will come on-line.

       “They will consume about 2,000 megawatts of electricity. TNB is well-positioned to capitalise on this given its reserved margin of 40%,” Kenanga Research said.

       According to HLIB Research, TNB’s management saw a potential of 4.3 gigawatts of electricity demand from the development of data centres in Malaysia.

       “The government has provided an exclusive Green Lane Pathway to expedite the development of these projects, shortened to just 12 months process from 36 to 48 months.

       “TNB will benefit from beyond kilowatt-hour services such as solar rooftop solution, fibre connectivity network, cooling power solution, Green Electricity Tariff, among others,” it said, adding that it expected TNB’s earnings to remain stable from 2023 until 2025.

       Analysts noted that TNB’s ICPT receivables were in a declining trend in tandem with the persistent downtrend in fuel prices.

       TNB expected its ICPT receivables to fall to RM7bil in 1H24 from RM8.9bil in 2Q23 and RM13.8bil in 1Q23.

       Kenanga Research explained that the shrinking ICPT receivables would result in lower working capital requirements, and hence lower interest expenses and better earnings for TNB.

       The brokerage noted that TNB also indicated there was a declining trend in its non-ICPT receivables.

       “It observed over the past few months that its collection has exceeded the amount billed, indicating that its customers have been settling their past dues as their cashflow positions improved on the back of the economic recovery,” it said.

       “We continue to like TNB for its dominant position in power generation, transmission and distribution in Malaysia; its defensive earnings backed a resilient domestic economy and assets that are largely regulated; and its heavyweight index-linked stock status,” it added.

       TNB’s net profit slid to RM1.33bil in 1H23 from RM1.77bil in 1H22, despite higher revenue of RM25.95bil in 1H23, as compared to RM25bil in 1H22.