Summary
TENAGA’s 4QFY24 results came in within expectations. Quarterly CNP stood at RM701.5m (+35.6% qoq, +56.0% yoy), bringing the FY24 CNP to RM3.8bn (+22.6% yoy).
The Group declared a final dividend of 26.0sen in 4QFY24 (4QFY23: 28.0sen), bringing FY24 DPS to 51.0sen (FY23: 46.0sen).
Looking ahead, we expect earnings growth to be supported by higher RAB under RP4, 10GW power generation project pipeline scheduled for completion by 2030, and higher capacity income from Manjung 4 as it resumes operations.
After incorporating FY24 results, we tweaked our FY25 and FY26 earnings forecasts by -0.6% and -0.2% respectively.
Reiterate BUY with unchanged TP of RM16.04 based on DCF valuation (WACC: 7.1%, g: 2.0%), and appraised with a three-star ESG rating.
Within Expectations. TENAGA’s FY24 core net profit (CNP) of RM3.8bn was in line with our expectations but below consensus estimates, achieving 101% of our forecast and 94% of consensus full-year forecasts.
Highest Dividend since FY20. The Group declared a final dividend of 26.0sen in 4QFY24 (4QFY23: 28.0sen), bringing FY24 DPS to 51.0sen (FY23: 46.0sen).
YoY. Excluding exceptional items, such as forex losses (RM604.5m), reversal of impairment losses on receivables (RM816.0m), reversal of impairment losses in associates (RM225.1m), and other adjustments, 4QFY24 CNP surged 56.0% yoy to RM701.5m, driven by lower operating expenses, including staff costs (-13.5% yoy) and depreciation expenses (-6.4% yoy), as well as higher finance income (+38.2% yoy). These gains more than offset the significant share of loss in associate amounting to RM202.2m (4QFY23: share of profit RM18.0m), which was due to derecognition of the share of profit from the associate in Türkiye (hyperinflationary accounting). This was offset by a corresponding impairment reversal, resulting in neutral earnings impact. Meanwhile, Genco registered LAT of RM247.4m, widened from LAT of RM198.9m due to a negative fuel margin of c.RM61.8m (vs positive fuel margin of RM149.2m in 4QFY23).
YTD. For the full year, FY24 CNP rose 22.6% yoy to RM3.8bn on the back of higher finance income (+15.5% yoy), lower finance cost (-5.4% yoy), reflecting loan repayment and interest capitalisation, as well as reduced negative fuel margins (FY24: -RM153.8m vs FY23: -RM618.7m). Evidently, Genco posted a PAT of RM178.9m in FY24, marking a turnaround from LAT of RM526.8m in FY23.
QoQ. CNP jumped 35.6% qoq, supported by higher finance income (+40.9% qoq), lower subsidiaries’ cost of sales and general expenses (-40.5% qoq) and decrease in depreciation costs (-5.9% qoq). However, Genco recorded LAT of RM247.4m, reversing from PAT of RM107.3m in 3QFY24 due to higher negative fuel margins (4QFY24: -RM61.8m vs 3QFY24: -RM22.2m) and the impact of a one-off claim at Southern Power Generation amounting to RM163.0m in 3QFY24. Notably, Manjung 4 resumed operation on 5 Nov 2024, but we believe full capacity income recognition will occur only in FY25 as it takes time for the UOR to return below the threshold.
Electricity Demand Growth Driven by Domestic Sector and Data Centre. 4QFY24 Electricity demand grew by 3.1% yoy, supported by Commercial (+8.1%) and Domestic (3.5%) demand. The rise in Commercial sector’s demand is unsurprising, given that data centres are classified under this segment. On a full-year basis, FY24 Electricity demand grew 6.2% yoy, exceeding Malaysia’s 5.1% GDP growth, supported by growth in Commercial (+9.2%) and Domestic (+8.5%) demand.
Outlook. Looking ahead, we expect earnings growth to be supported by higher allowed Capex under RP4, which would expand the regulated asset base (RAB) and hence the allowed return for the regulated business. Meanwhile, the non-regulated power generation business is set for sustainable and diversified earnings growth, underpinned by its 10GW project pipeline scheduled for completion by 2030. Manjung 4 resumed operation on 5 Nov 2024 and should contribute to higher capacity income in the coming quarters. However, with the benchmark Newcastle coal prices declining since early January (Figure 1), domestic power generation business could suffer from negative fuel margins in the upcoming quarter.
Earnings Revision. After incorporating FY24 results, we tweaked our FY25 and FY26 earnings forecasts by -0.6% and -0.2% respectively. We also introduce FY27 earnings forecast of RM4.3bn.
Valuation and Recommendation. Reiterate BUY with unchanged TP of RM16.04 based on DCF valuation (WACC: 7.1%, g: 2.0%). No ESG premium or discount has been applied, given the Group’s three-star ESG rating. We remain positive on TENAGA’s outlook, driven by rising energy demand, ongoing energy transition under the NETR, which requires significant grid investment and modernisation, as well as potential growth from low-carbon electricity exports to Singapore.
Risk. Rapid plunge in coal prices, unplanned shutdowns of power plants, weakening of Ringgit, policy risk.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.438795 | 4.472568 |
EUR | 4.812854 | 4.816325 |
CNY | 0.611771 | 0.612291 |
HKD | 0.570562 | 0.574463 |
SGD | 3.306949 | 3.329359 |