TENAGA has expressed its keen interest to participate in the development of Indonesia’s new capital Nusantara with energy solutions. This could be a potential to expedite TENAGA’s green energy expansion and at the same time addressing the ESG issue. BUY with TP of RM10.17 which is based on a 5% discount (due to 2-star ESG rating) to our DCF-derived valuation of RM10.70. We remain optimistic on its earnings resiliency as the ballooning fuel costs will eventually be recovered under the IRB framework. The 20.0 sen/kWh surcharge in 1HFY23 should likely see the reduction of ICPT under-recovery in the future.

TENAGA revealed that, during Datuk Seri Anwar Ibrahim’s two-day official visit to Indonesia last week, a Letter of Intent (LOI) was handed to the Chairman of the Nusantara Authority to express interest in exploring and participating in the development and operation of energy solutions, such as gas, solar, wind, hydro and battery storage. TENAGA is also keen to explore any opportunity in the grid interconnection business through collaboration with PT Perusahaan Listrik Negara (PLN) to develop a secure and reliable high-voltage transmission infrastructure in Nusantara. Separately, TENAGA also handed over another LOI to PLN to review a previous MoU to allow both utilities to revive the exploratory study for the development of a high voltage interconnection facility between Sumatera and Peninsular Malaysia.

The new capital city which sits on a 632,850-acre site is a green field development project aims of having 100% of renewable energy (RE) goals achieved at its installed capacity and becoming the first city in the world with a population of more than 1m to achieve this target. According to ASEAN Briefing, with Nusantara, East Kalimantan province possesses huge potential for clean energy with RE sources that could reach 20GW comprising 65% solar energy and 26% hydro power.

So far, Indonesia is not one of TENAGA’s RE focus markets (its focus markets in SEA are Thailand, the Philippines and Vietnam). TENAGA has projected the New Energy Division (which houses RE portfolio) to have installed RE capacity of 7.2GW by 2030 from 0.7GW in 2022. This will further increase to 9.9GW in 2040 and 14.3GW in 2050.

Source: Rakuten Research - 16 Jan 2023