Investment Highlights

• We maintain BUY on Tenaga Nasional (TNB) with a DCFbased fair value of RM11.80/share (WACC: 7%; terminal growth rate: 2%). We ascribe a 3-star ESG rating to TNB.

• TNB held an Investors Day yesterday. Although it will take time, we positively view TNB’s initiatives to reduce its carbon emissions. Here are the key takeaways:-

• GenCo will be listed in 2 to 3 years’ time. This will give time for GenCo to grow its earnings. GenCo’s targets are to record EBIT of RM2.5bil in FY25F and RM3.4bil in FY30F. GenCo achieved an EBIT of RM2.4bil in FY21.

• GenCo has strategies to reduce its carbon emissions to zero by FY50F. These include early retirement of coal plants, re-powering the plants with green technology such as carbon capture and expanding international gas and hydro portfolio.

• Power plants that will be retired before their PPAs expire in FY30F are Kapar Energy Ventures (KEV) and Manjung 1. As the cost of the carbon capture technology is expensive at almost US$10mil/MW, GenCo may offer equity stakes in the re-powered plants to the vendors or other parties.

• TNB may also list its new energy division in FY28F after the listing of GenCo. Under NECo (New Energy Co), there will be a Development and Asset Management Company and a Renewable Asset Fund.

• Investors may be offered stakes in NECo or the Renewable Asset Fund. The new energy division will be carrying out TNB’s investments in solar and wind projects. The investment size of the division is envisaged to be US$7bil by FY50F.

• TNB plans to partner property companies to develop 600 acres of land at UNITEN (Universiti Tenaga Nasional) in Kajang into a Smart City Sandbox. The Smart City will house some of TNB’s operations such as Allo and GSparx. There will also be commercial lots offered for sale.

• The Smart City will have sustainable drainage systems, home energy management systems and EV charging systems, amongst others. It will be developed in 3 to 5 years’ time. TNB is still discussing with potential partners on the project.

Source: AmInvest Research - 17 Aug 2022