KUALA LUMPUR (Sept 3): CIMB Securities has increased Tenaga Nasional Bhd’s (TNB) (KL:TENAGA) earnings forecast, after TNB reported a robust performance for its first half of FY2024 (1HFY2024), partly driven by a notable turnaround in its local power generation business, GenCo. 

In a note on Tuesday, CIMB raised its FY2024/FY2025/FY2026 core earnings per share (EPS) forecasts for TNB by 21.5%, 18.3% and 7.1%, on the back of stronger projections for the power generation segment’s earnings.

Subsequently, the house raised its target price (TP) for TNB to RM16.89 (from RM15.27), and maintained a “buy” recommendation on the stock, highlighting TNB’s strategic position in the government’s energy transition plans. 

Notably, TNB’s 1HFY2024 core net profit (CNP) surged by 31% year-on-year (y-o-y) to RM2.2 billion, underpinned by improved operational performance and strong electricity demand.

CIMB noted that during TNB’s 2QFY2024 results briefing, it had highlighted key drivers behind its enhanced performance, including a significantly reduced negative fuel margin and efficiencies gained through the co-blending of different coal types at some of its power plants. 

TNB also benefitted from a 7.9% y-o-y growth in electricity demand during 1HFY2024.

Besides, GenCo had played a crucial role in the utility company’s financial turnaround.

“TNB’s local (power) generation business, GenCo, reported strong 1HFY2024 PAT (profit after tax) of RM319 million, versus LAT (loss after tax) of RM194 million for 1HFY2023,” CIMB said.

Looking ahead, TNB is optimistic about sustaining its earnings momentum into 3QFY2024, although there may be a slight dip in 4QFY2024 due to the backloading of non-fuel costs. 

The company has also revised its electricity demand forecast for FY2024 upwards to 3.0%-4.0%, compared to the earlier estimate of 2.5%-3.0%, buoyed by the rising energy demand from data centres.

“This is a key positive, as this could indicate higher projected electricity demand going into Regulatory Period 4 (RP4), versus the 1.7% growth parameter embedded in RP3,” CIMB added.

Meanwhile, HLIB Research maintained a “hold” call on TNB, with a TP of RM13.30, citing concerns over the relatively unattractive dividend yield of 3.4% for FY2024, as the company reserves cash to finance future capital expenditures.

HLIB also added that the dividend yield has become relatively unattractive at 3.4% for FY2024, as it expects Tenaga to reserve more cash to finance higher future capital expenditure (capex).

The research house expects contributions from the regulated transmission and distribution segment to improve further from 2025 onwards under the new RP4, driven by a higher regulatory asset base (RAB).

“However, the earnings may fluctuate from time to time, due to unforeseen circumstances,” HLIB added.

At time of writing on Tuesday, TNB’s share price rose 26 sen or 1.79% at RM14.82, valuing the company at RM86.15 billion. 

https://www.theedgemarkets.com/node/725297