TENAGA has committed to reduce its dependency on coal-fired plants by 50% of capacity by 2035 before being coal-free by 2050. TENAGA will spend RM6.5bn on 4,894MW RE expansion from now till 2025. Overall, we are positive on plans to address the ESG issue. BUY with a TP of RM11.80 based on FY22E PER of 10.7x. The stock is also supported by a decent dividend yield of >4% with potential special dividend.

As of March this year, coal-fired plants made up 48% of TENAGA’s generation asset portfolio in Peninsular Malaysia and contributed c.24% to group revenue. To address these issues, TENAGA has set to increase its renewal energy (RE) assets to 8,300MW by 2025 from 3,406MW currently, with RE making up 10% of group revenue from 5% currently. It has budgeted RM6.5bn for this capacity expansion where >97% of these are from two geographical areas, UK/Europe and Southeast Asia with only 361MW expansion locally.

After its last new coal plant, the 70%-owned Jimah East Power (JEP) which was commissioned in 2019, TENAGA has pledged not to invest in greenfield coal plant in the future. It has committed to reduce coal-based capacity by 50% in 2035 and to be coal-free by 2050. We believe the commitments are achievable given that two TENAGA’s owned coal plants will be retired in 2029 and 2030, which would reduce its coal generation capacity by 46% in 2030 while the last coal plant JEP’s PPA will expire by 2044.

Its share price movement is fairly correlated to the changes of its foreign shareholding at 78%. The selling pressure intensified in the past two years as foreign shareholdings fell below 20% in early 2019 to currently slightly below 12%, given the coal-based energy generating issue. However, the degree of sell-down has somewhat abated in the past 2- 3 months. In fact, foreigners have turned net buyers for the first time in 21 months in Aug with net buying worth RM154m. Month-to-date in September, foreigners remained net buyers with a total net buying of RM94.7m.

Source: Rakuten Research - 28 Sept 2021