Summary
We left TENAGA’s analyst briefing with the following key takeaways:
Management is confident in securing 60%-70% of the contingent Capex in RP4.
RM20bn Capex is targeted in 2025, while electricity demand growth is projected at 3.5%-4.5%.
Electricity demand remains robust, driven by data centre growth.
No change to earnings forecasts.
Reiterate BUY recommendation with an unchanged TP of RM16.04 based on DCF valuation (WACC: 7.1%, g: 2.0%), and appraised with a three-star ESG rating.
Confident in Securing 60%-70% of Contingent Capex. Management has disclosed further details on RP4’s capital expenditure (Capex) (Figure 1). To recap, RP4’s approved Capex includes RM26.6bn in base capex and RM16.3bn in contingent Capex. The base Capex has already been factored into the base tariff of 45.62sen/kWh announced for RP4 (Figure 2). Meanwhile, contingent Capex will only be implemented upon reaching specific triggering points. For instance, if demand for smart meters increases, TENAGA can install additional smart meters once conditions are met. The recovery mechanism for contingent Capex is still under discussion with the Energy Commission, but one certainty is that the regulated rate of return (WACC) will remain at 7.3%. As shown in Figure 1, 64% of the contingent Capex is allocated to energy transition initiatives (distribution automation, smart meters, EV infrastructure), 30% is designated for meeting potential demand growth (data centres, EV charging), while the remaining 6% is earmarked for ensuring security of supply. Management is confident of securing 60%-70% of contingent Capex over the next three years of RP4.
RM20bn Capex Targeted in 2025. For 2025, electricity demand growth is projected at 3.5%-4.5%, slightly below the forecasted GDP growth of 4.5%-5.5%. Management has guided a total Capex of c.RM20bn, comprising RM10bn regulated Capex, RM8bn unregulated Capex and RM1bn-RM2bn contingent Capex. Meanwhile, with coal prices trending down (Figure 3) and the coal price forecast revised higher to USD97/MT in RP4 (vs USD79/MT in RP3) (Figure 2), ICPT receivables from the government should be lower than during RP3, thereby freeing up additional cash flow for TENAGA to fund the RM20bn Capex target in 2025. Notably, TENAGA has already received RM3.0bn out of RM3.4bn ICPT receivables for the period Jan 2024 to Dec 2024 (government portion), demonstrating that the IBR framework remains intact.
Demand Remains Robust, Driven by Data Centre Growth. Cumulatively, TENAGA has secured electricity supply agreements (ESA) for data centre projects with a total maximum demand of 5.9GW (Figure 4). In 2024, the Group completed 9 projects with maximum demand of 1.3GW, bringing the total completed projects to 1.9GW. As of Dec 2024, load utilization of the data centres stood at 405MW, while the latest figure has increased to c.700MW. Despite concerns regarding the AI Diffusion Framework, which restricts exports of advanced GPU chip, and the rollout of Deepseek, management has stated that there is no indication of slowing data centre growth in Malaysia. TENAGA aims to complete 5 projects with a total maximum demand of 1.3GW in 2025.
Earnings Revision. No change to earnings forecasts.
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 based on 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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