Investment Highlights

• We maintain BUY on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM11.80/share (WACC: 7%, terminal growth rate: 2%) and a neutral 3-star ESG rating. We reduce our FY23F DPS forecast to 48 sen from 50 sen to be in line with TNB’s official payout policyof 30% to 60%.

• TNB held an analyst briefing yesterday. Here are the key takeaways:-
  • TNB normally recognises the bulk of its general expenses in 4Q. Hence, it is not a surprise that general expenses surged by 82% QoQ in 4QFY22. Comparing FY22 against FY21, general expenses slid by 6% to RM3.8bil.
  • TNB will stick to its dividend payout policy of 30% to 60% in FY23F. We have assumed a DPS of 48 sen (FY22: 46 sen) in FY23F, which implies a payout of 60%.
  • TNB will be conducting feasibility studies on interconnection with Indonesia’s PLN (Perusahaan Listrik Negara) and Thailand’s EGAT (Electricity Generating Authority of Thailand). This is to facilitate the setting of the ASEAN Power Grid in future. Recall that in January 2023, YTL Power and TNB teamed up to export 100MW of electricity to Singapore via a newly upgraded interconnector. The revenue from this is estimated to be RM500mil.
  • TNB will invest RM22mil to spur the development of the EV ecosystem in FY23F. These include the deployment of 40 EV charging systems along highways in Peninsular Malaysia. TNB will also set up EV charging stations in some of S P Setia’s township development projects.
  • GSparx, which carries out TNB’s solar rooftop projects, is expected to secure 145MW worth of jobs in FY23F. This is expected to generate revenue of RM70mil. GSparx swung into profitability in FY22 after being in the red for 3 years.
  • TNB is evaluating 4,400MW of RE projects. Apart from ASEAN, the group is eyeing investment opportunities in South Korea, Taiwan and Australia. As at January 2023, TNB has 3,907MW of renewable capacity, which is 17% of its total generating capacity.
• TNB is currently trading at an attractive FY23F PE of 12x, which is lower than the 2-year average of 15x, while offering a good dividend yield of 5%.

Source: AmInvest Research - 1 Mar 2023