• Downgrade to HOLD (TP: RM12.57). Tenaga 1QFY24 core PATAMI of RM912mn was both inline with our estimate and consensus at 25% and 23% respectively. In 1QFY24, the revenue jumped 8.0% YoY attributed to higher sales of electricity (+1.3% QoQ, +9.6% YoY) and contribution from UK operations and new acquisitions in Australia and Ireland. Notwithstanding, the bottom line recorded a significant decline of 29% YoY, on the back of foreign exchange translation loss and higher effective tax rate. No dividend declared. We made no changes to our forecast pending analyst briefing. Downgrade Tenaga to a HOLD (from a BUY) as the share price has reached our TP due to the recent rally. Our TP of RM12.57 is unchanged based on DCF methodology with WACC of 7.3% and terminal growth of 3%.

• Key highlights. 1QFY24 registered a negative fuel margin of RM26mn vs positive fuel margin in 4Q23 at RM149mn. The base Applicable Coal Price (ACP) during the quarters was lower at RM24.73/MMBtu (price in billing the generators) compared to the coal price paid to supplier at RM24.81/MMBtu.

• Earnings Revision. No changes pending management updates.

• Outlook. We anticipate Tenaga’s earnings to gradually pick up in the coming quarters, in tandem with the normalisation of coal prices and stronger electricity demand. Overall, we expect the Group to deliver resilient earnings underpinned by significant electricity demand growth from Data Center (DCs) where forecasted to be at a maximum demand of 5GW by 2035. Of note, Tenaga has received applications from DCs with a total maximum demand exceeding 11GW, which is substantial compared to Peninsular Malaysia’s installed capacity.

Source: BIMB Securities Research - 4 Jun 2024