• Tenaga Nasional (TNB) has received a letter from the Energy Commission for the implementation of Hydro Life Extension Program of Sungai Perak hydroelectric power plants. The power plants have a capacity of 651MW in total.

• A total of 6 power stations comprising 18 units will undergo refurbishment under the program starting from FY24F. The first unit will commence operations in FY25F under the new 40-year Power Purchase Agreement (PPA).

• We view this development positively as it would help TNB achieve its target of having renewable energy (RE) capacity of 8,300MW by FY25F. As at July 2022, TNB’s RE capacity (hydro and solar) was 3,794MW. Currently, TNB has hydro capacity of 2,661MW.

• We do not expect earnings from the hydro power plants to be significant as their capacity is only 651MW. This is 4% of TNB’s equity generating capacity of 14,909MW. RE accounted for only 3% of TNB’s revenue in 1HFY22.

• Currently, RE is not large in terms of the generation mix in Peninsula Malaysia. In 2QFY22, coal accounted for 58% of the generation mix in Peninsular Malaysia. This was followed by gas (37%), hydro (4%), solar (1%) and distillates (0.3%).

• We maintain BUY on TNB with a fair value of RM11.80/share. TNB is currently trading at a FY23F PE of 9x, which is lower than its 2-year average of 15x.

Source: AmInvest Research - 17 Oct 2022