• We maintain HOLD on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM14.55/share (WACC: 7%, terminal growth rate: 2%). Our fair value of RM14.55/share implies a FY25F PE of 20.4x. We attach a 3-star ESG rating to TNB.
• We visited TNB's Chenderoh Hydropower Plant in Perak last week. Here are the key takeaways from the site visit: -
  • Chenderoh is the oldest hydropower plant in Malaysia. It was commissioned in 1930 under the British rule. The hydropower plant came about due to the need to provide reliable energy supply to the tin mines in Perak. Chenderoh Hydropower Plant has a capacity of 40MW.
  • The PPA for Chenderoh Hydropower Plant was extended for five years until August 2027 after it expired in 2022. Hydropower accounted for 3.6% of generation mix in Peninsular Malaysia in 2QFY24.
  • Going forward, TNB plans to build a 70MW floating solar project on the reservoir of Chenderoh, Sungai Perak. This is part of the broader plan to install 2,500MW of floating solar on five hydropower plants by 2040F.
  • TNB is currently carrying out feasibility study on the floating solar project for Chenderoh. Construction is expected to commence in 1QFY25 and complete in FY26F.
  • Chenderoh was chosen to be the first hydropower plant to have floating solar as it has a large land area and tarred roads. TNB will award the EPCC contract to a mix of local and foreign companies. We understand that local companies may not have vast experience building floating solar for hydropower plants.
  • Floating solar costs 15% to 20% more than solar farms on the ground due to the anchoring and mooring systems. The cost of building a floating solar is estimated to be RM3mil/MW. The anchoring and mooring systems are important for a floating solar farm. The mooring systems ensure that solar panels remain in place amidst environmental forces such as wind and waves.

Source: AmInvest Research - 22 Oct 2024