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NETR initiatives make TNB's earnings prospect attractive: CIMB Securities

Publish date: Thu, 16 May 2024, 03:00 PM

KUALA LUMPUR: The timely implementation of the National Energy Transition Roadmap (NETR) initiatives should make Tenaga Nasional Bhd's (TNB) earnings prospect attractive, according to CIMB Securities.

This will act as a strong rerating catalyst for TNB, said CIMB Securities, which upgraded the stock to a "Buy" with a higher target price of RM15.27.

The firm explained that TNB's attractive earnings prospect will be driven by higher regulated capital expenditure associated with NETR.

This will lead to a favourable Regulatory Period 4 (RP4) outcome and supercharge the company's earnings growth going forward.

"We favour TNB as it is the primary beneficiary of Malaysia's decarbonisation agenda," CIMB Securities remarked.

The firm noted that TNB's financial year 2023 Peninsular Malaysia electricity demand grew 3.6 per cent year-on-year (yoy), largely driven by higher demand from data centres (DCs).

It expects the strong pipeline of DC projects in Malaysia to drive domestic demand growth, estimated at 2.0-2.5 per cent for FY2024-FY2026.

This growth is expected to contribute to higher demand forecast for the RP4 covering 2025-2027, surpassing RP3 demand growth of 1.7 per cent.

"During RP4/RP5, TNB's regulated asset base is expected to see a significant rise due to higher capex, primarily to support the construction of additional infrastructure needed to boost electricity supply for upcoming DCs and make strategic investments in grid infrastructure as part of the government's energy transition plans.

"These plans aim for a 70 per cent renewable energy (RE) target by 2050, necessitating substantial investments to improve grid flexibility, to manage the increased RE demand, and to support new RE plant developments," it said.

CIMB Securities pointed out that TNB had estimated an energy transition (ET) capex allocation of RM35 billion from FY2025-FY2030, in addition to a non-ET regulated capex of RM54 billion.

This brings the total regulated capex to RM90 billion for FY2025-FY2030, amounting to RM15 billion per year, about double the average capex of RM7.5 billion from FY2022-FY2024, primarily for grid infrastructure upgrades.

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