• Maintain BUY (TP: RM12.57). TENAGA 12MFY23 PATAMI of RM2.8bn was above our estimate but below consensus at 114.5% and 80.2% respectively. In 4QFY23, the revenue saw a slight increase of 1.4% QoQ, attributed to higher sales of electricity. Nonetheless, the bottom line experienced a significant decline of 31.8% QoQ, amounting to RM584mn, primarily due to the impairment of intangible assets recognised during the quarter. Despite these challenges, the company declared a DPS of 28sen, maintaining the FY2023 dividends at 46sen, unchanged from the previous year. No changes to our forecast pending analyst briefing. Maintain a BUY call on TENAGA with a higher DCF-derived TP of RM12.57 as we revised our terminal growth to 3% from 2% as well as rolling over our valuation to FY24F.

• Key highlights. Notably, the Group finally registered a positive fuel margin in 4Q23, amounting to RM149.2mn, after recording three consecutive quarters of negative fuel margins, resulting in losses of RM767.9mn for the 9MFY23. The base Applicable Coal Price (ACP) in 4Q23 was slightly higher at RM25.42/MMBtu, surpassing the coal price paid to the supplier, which stood at RM24.36/MMBtu.

• Earnings Revision. No changes pending management updates.

• Outlook. We anticipate TENAGA’s FY2024 earnings to gradually pick up in the coming quarters, in tandem with the normalisation of coal prices, expectations of a strengthening Ringgit against the USD, and stronger electricity demand. Overall, we are optimistic on TENAGA as we expect the Group to deliver resilient earnings driven by exponential growth in its regulated asset base through massive investments in the 'grid of the future,' decarbonisation efforts, and as one of the largest key beneficiaries from the National Energy Transition Roadmap (NETR).

Source: BIMB Securities Research - 28 Feb 2024