TENAGA’s 1QFY25 core net profit of RM1.1bn (+52.5% qoq, +10.3% yoy) was in line with expectations, accounting for 26% of our and 22% of consensus full-year forecasts.
1QFY25 CNP rose 10.3% yoy, in line with a 17.6% revenue growth, driven by the higher base tariff effective 1 Jan 2025, which reflects the higher allowed return.
Looking ahead, we expect yoy earnings growth to be supported by higher allowed Capex under RP4, which would expand the RAB and consequently the allowed return for the regulated business.
Further upside potential arises from the deployment of contingent Capex, where management is confident of securing 60%-70% of the allocation under RP4.
No change to our earnings forecasts. 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. Excluding exceptional items, such as net forex gain (-RM38.9m), net impairment of receivables (+RM23.3m), net provision/write-off of inventories (+RM30.1m), and other adjustments (-RM2.4m), TENAGA’s 1QFY25 core net profit (CNP) of RM1.1bn (+52.5% qoq, +10.3% yoy) was in line with expectations, accounting for 26% of our and 22% of consensus full-year forecasts.
YoY. 1QFY25 CNP rose 10.3% yoy, in line with a 17.6% increase in revenue, driven by higher base tariff effective 1 Jan 2025. The base tariff hike reflects the expanded regulated asset base (RAB) and the corresponding higher allowed return. This more than offset the rise in non-generation operating expenses (+3.2% yoy) due to higher staff, maintenance and depreciation expenses. Notably, ICPT recorded an over-recovery of RM175.2m (vs under-recovery of RM2.4bn in 1QFY24) as the new base tariff for RP4 assumes higher fuel costs, while the actual fuel costs during the quarter was lower. Meanwhile, Genco turned around from a LAT of RM80.4m in 1QFY24 to PAT of RM25.4m in 1QFY25, despite a higher negative fuel margin of c.RM33.7m (vs negative fuel margin of RM25.8m in 1QFY24). This turnaround was primarily driven by the additional capacity income for Manjung 4 following its resumption of operation on 5 Nov 2024.
QoQ. CNP surged 52.5% qoq, supported by 11.5% increase in revenue due to higher base tariff, lower maintenance costs (-20.0% qoq) and reduced general expenses (-45.5% qoq). The higher general expenses in 4QFY24 were attributed to increased training activities and ICT related costs. Genco recorded a turnaround from LAT of RM247.4m to a PAT of RM25.4m, supported by reduced negative fuel margins (4QFY24: -RM61.8m vs 1QFY25: -RM33.7m) and the resumption of capacity income for Manjung 4.
Electricity Demand Growth Lacklustre despite Commercial Growth. 1QFY25 electricity demand growth was lacklustre, declining by 1.2% yoy, due to lower Domestic (-4.0% yoy) and Industrial (-5.5% yoy) demand. However, the Commercial sector saw a robust increase of 5.1% yoy, likely driven by a step-loaded increase in data centre demands.
Outlook. Looking ahead, we expect yoy earnings growth to be supported by higher allowed Capex under RP4, which would expand the RAB and consequently the allowed return for the regulated business. Further upside potential arises from the deployment of contingent Capex, where management is confident of securing 60%-70% of the allocation under RP4. With benchmark Newcastle coal prices stabilising since April (Figure 1), the domestic power generation business is expected to report less negative fuel margins in the upcoming quarter.
Earnings Revision. No change to our earnings forecasts.
Valuation and Recommendation. Reiterate BUY with an 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, and potential growth from low-carbon electricity exports to Singapore.
Risk. Sharp plunge in coal prices, unplanned shutdowns of power plants, weakening of Ringgit, policy risks.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.212042 | 4.248408 |
| EUR | 4.921000 | 4.929487 |
| CNY | 0.591903 | 0.592919 |
| HKD | 0.540309 | 0.544492 |
| SGD | 3.268153 | 3.293573 |