KUALA LUMPUR: Tenaga Nasional Bhd (TNB) is expected to increase its debt level and lower its dividend payment in order to fund its energy transition, said Affin Hwang Capital.

Affin Hwang said TNB had announced an ambitious capital expenditure (capex) plan to transform the group for a coal-free future. 

To fund the transition, the firm said TNB was looking at some new avenues for fresh capital including exploring the possibility of an initial public offering (IPO), but not in the immediate term, possibly post 2025.

"TNB should be able to raise its gearing level to 55 per cent from 51 per cent currently, translating to at least an additional RM11 billion in borrowings.

"As such, there is a risk of a lower dividend payout moving forward as TNB needs to reprioritise cash deployment," it said. 

Moving forward, Affin Hwang believes that TNB will continue to operate in a tough environment due to the global increase in fuel costs. 

The firm also expects TNB's earnings to be supported by the robust demand for electricity especially from the commercial and industrial sectors.

"We maintain our Hold call on TNB with an unchanged target price of RM8.30. 

"Key upside risks to our view are better-than-expected financial performance. 

"Downside risks to our view are lower-than-expected financial performance and unplanned power outages at its power plants," it added.