After a recording a robust core net profit of RM1.4bil in 2QFY24, Tenaga Nasional's (TNB) core earnings sank by 44% QoQ to RM774mil in 3QFY24 dragged by higher general expenses and absence of a one-off claim for Southern Power Plant. We maintain UNDERWEIGHT on TNB as valuations are expensive at 19x FY25F earnings. Our target price of RM12.00/share is based on a FY26F PE of 16x, which is the group's five-year average. We ascribe a 3-star ESG rating to TNB.

• TNB's core net profit of RM3bil in 9MFY24 (excluding impairment of RM225.1mil in respect of the Turkey associate and RM1bil unrealised forex gains) was within our forecast and consensus. TNB's core net profit grew by 24% YoY to RM3bil in 9MFY24 as fuel margin losses declined and net interest expense slid by 13%.
• Smaller fuel margin losses. GenCo recorded smaller fuel margin losses of RM92mil in 9MFY24 compared to RM767.9mil in 9MFY23 as coal prices stabilised. On the back of a decline in fuel margin losses, GenCo swung into a net profit of RM426.3mil in 9MFY24 from a net loss of RM327.9mil in 9MFY23.
• Electricity demand in Peninsular Malaysia rose by 7.3% YoY in 9MFY24. This was driven mainly by the residential and commercial sectors. The residential sector consumed 10.1% more electricity in 9MFY24 while electricity demand from the commercial sector climbed by 9.6%. Energy demand from the industrial sector inched up by 2.9% YoY in 9MFY24.
• ICPT surcharge shrank to RM7.4bil in 9MFY24 (9MFY23: RM8.5bil). This can be attributed to lower gas and coal costs. Recall that under RP3, the reference prices are US$79/tonne for coal and RM26/mmbtu for gas.
• Receivables were flat at RM12.1bil as at end-September vs. end-June 2024. We believe that collection of amounts owing by customers is no longer a major issue as TNB has been receiving payments consistently from the government.

Source: AmInvest Research - 29 Nov 2024