We believe that there are regulatory risks in respect of RP4 due to the public backlash to the proposed tariff hike of 14.2%. We estimate the allowable electricity demand growth to be 3% under RP4 (RP3: 1.7%), which means that Tenaga Nasional (TNB) would not be able to enjoy excess demand coming from data centres. We have raised TNB’s FY25F net profit by 4% and FY26F net earnings by 5% to account for the higher electricity sales volume of 3% under RP4 (RP3: 1.7%). Despite this, we maintain UNDERWEIGHT with a higher target price of RM12.60/share (vs. RM12.00/share previously) as TNB’s FY25F PE of 19x has already reflected the assumptions in RP4. Our target price of RM12.60/share is based on a FY26F PE of 16x, which is the group’s five-year average.

• Earnings impact from tariff hike may not be significant as it may have accounted for the higher costs of coal and gas. Hence, the ICPT surcharge would be smaller and there would not be a large change in revenue. TNB and Energy Commission have not released the reference prices for coal and gas under RP4 yet. Presently, Newcastle coal price is US$124/tonne vs. RP3's reference price of US$79/tonne. The exchange rate is US$1.00: RM4.48 compared to US$1.00:RM4.12 under RP3.
• Actual tariff realised by consumers in 2H2025 may be slightly higher than current levels. We believe that presently, the actual or final tariff incurred by most users is between 45 sen and 50 sen/kWh. These are inclusive of the ICPT surcharge of 16 sen/kWh (for commercial and industrial users). If the proposed base tariff of 45.6 sen/kWh has already reflected the higher coal and gas costs, the final tariff in 2H2025 may be slightly higher than current levels due to a smaller ICPT surcharge. TNB has not released the new tariff table yet.
• We believe that the price cap would still apply if TNB's average tariff realised is higher than RP4's base of 45.62 sen/kWh (RP3: 39.95 sen/kWh). TNB's realised tariff may be higher than the base tariff if there is a change in the customer mix e.g. a larger number of commercial users. Data centres are classified under the commercial sector in RP3. TNB returned about RM492mil under the Price Cap to the Electricity Industry Fund in 9MFY24.

Source: AmInvest Research - 6 Jan 2025